M&A In Business Aviation: All FBOs, No OEMs
Looking into 2021 and beyond, the business aviation sector is a tale of two worlds when it comes to mergers and acquisitions.
Nobody seems to want to buy a major business jet maker—including other major business aviation OEMs—but lately plenty of investors seem interested in buying fixed-base operators (FBOs) or other business aviation services.
Looking into 2021 and beyond, the business aviation sector is a tale of two worlds when it comes to mergers and acquisitions. On the manufacturing side, M&A remains frozen with not even hints of dealmaking since Textron peeked into Bombardier when everything at the latter was for sale right before the COVID-19 pandemic.
But when it comes to FBOs, dealmaking is hot and expected to remain so as post-pandemic business jet activity ramps up from what turned out to be a muted decline during the novel coronavirus outbreak. This quarter, Blackstone Infrastructure Partners, Blackstone Core Private Equity, Cascade and Global Infrastructure Partners are expected to close on their $4.7 billion deal for Signature Aviation after a rare public bidding war emerged in late 2020.
Reportedly, Macquarie Infrastructure has been seeking multibillion-dollar bids for Atlantic Aviation, second to Signature in size. Meanwhile, acquisitions of smaller networks or one-off FBOs are announced almost weekly, and buyers openly advertise their continued interest.
Hawthorne Global Aviation Services “is actively seeking FBO acquisition candidates,” according to its website. “Our experience in FBO acquisitions allows us to conduct diligence expeditiously and discreetly. The financial backing of NexPhase Capital affords us the wherewithal to quickly consummate transactions.”
The acquisition interest in services comes in light of business aviation’s higher profile during the pandemic compared with its far larger sibling market, commercial aviation. Jefferies analysts noted in April that bizjet departures were down only 13% based on FAA-data of six-month trailing activity. In March, used jet inventories hit “historic lows,” down 24% year-over-year with total jets available for sale just 4.2% of the fleet compared with 6% in the prior-year period.
In new deliveries, optimism continues to rise. Bizjet deliveries dropped 23% to 499 aircraft in 2020 compared with 2019, according to Jefferies. Analysts there expect a 7% rise to 532 bizjets this year.
Manufacturers likewise are providing upbeat reports. In its recent quarterly update, Embraer declared the first quarter of 2021 to be the best three months for sales of bizjets in recent years. Bombardier said new-order activity accelerated through the latter half of 2020 and that is continuing so far in 2021. General Dynamics’ Gulfstream division had a book-to-bill rate in the latest quarter of 1.34x while Textron Aviation’s was nearly 1.6x.
“There are some positive trends in the business jet market,” noted National Bank of Canada Financial Markets analysts May 6.
Still, none of those trends are expected to drive M&A up in bizjet-related manufacturing—in the midterm, at least. “Business aviation …is sort of a slow industry,” said Brian Foley, founder of his own well-known consultancy. “There’s definitely room for consolidation, there’s just not an easy mechanism for it.”
Foley points to conventional wisdom that there are too many OEMs chasing too few customers with too many models of bizjets. In turn, “the strategic value of combining the manufacturers that are out there isn’t so great,” he said.
Instead, investor interest appears to be drawn to three M&A business cases starting with FBOs, as noted, because it is still a highly fragmented marketplace with an abundance of individual operations left to scoop up.
Another services offering that could raise M&A interest is charters.
In February, Wheels Up said it plans to go public by merging with Aspirational Consumer Lifestyle, a SPAC, or special purpose acquisition company. The move follows a string of acquisitions by Wheels Up, including Mountain Aviation in Denver, Gama Aviation Signature, Delta Private Jets, TMC, Avianis and Travel Management Co.
In April, Vista Global closed a deal to acquire private jet charter broker Apollo Jets for an undisclosed amount. Vista’s acquisition of Apollo follows its takeover of Red Wing Aviation last year, JetSmarter in 2019 and XOJet in 2018.
“I believe this is just the beginning of consolidation in our industry and Vista Global is leading this market transformation,” Vista founder and Chairman Thomas Flohr asserted during the announcement on Apollo Jets.
Perhaps, but further consolidation remains to be seen. Meanwhile, the other key target for investors lately—albeit far more controversial—has been startup companies working to provide electric vertical-takeoff-and-landing (eVTOL) aircraft for the flying taxi marketplace. Lillium Jet, Joby Aviation and Archer have each married special purpose acquisition companies, or SPACs, which allows them to become publicly traded companies. Each was valued as a multibillion-dollar business, despite lacking revenue streams.
“Some might be successful; most probably won’t,” Foley said. “But if you’re looking for where the money momentum is and the industry, it seems to be focused on that area right now.
“But as far as stodgy old, certified airplanes today, I don’t see a lot of movement into that area yet, at least,” he added.