Opinion: The Consolidation Shake-Up

Mergers and acquisitions (M&A) in business aviation and the aftermarket are a hot topic right now, particularly among the top U.S. operators. Take Vista Global acquiring XOJET, JetSmarter, Red Wing Aviation and Apollo Jet; or Jet Linx acquiring Meridian. Wheels Up continued its buying spree by purchasing Mountain Aviation in early 2021, before announcing plans to go public via a Special Purpose Acquisition Company (SPAC) transaction. In late 2020, the ongoing bidding war for Signature Aviation also became news.

Some of these moves pre-date the COVID-19 pandemic, but others have come during the thick of it, reflecting how much our industry is still a highly fragmented marketplace, ripe for consolidation.

How Will Consolidation Impact Business Aviation?

As the names in business aviation become larger brands, owners will diversify. A newly expanded portfolio from a charter provider may now include jet cards, maintenance repair, brokerage or fractional ownership.

Consolidation means fleets will also become larger, with operators on a mission to provide the broadest spread of jets and cabin types to their customers, particularly the new-entrant consumers seen since the start of COVID-19. This past year has attracted a new type of user--one who may have always had the means to use business aviation but never previously had the inclination until health during travel became their primary consideration.

Operators expanding their fleets are turning to pre-owned jets for the best value. New users will influence fleet makeup or aircraft purchase decisions, and given the interest rate environment in the U.S., more purchases will be financed. In addition, we’re seeing increased consolidation among management companies, which will look to dedicated vendors to provide long-term support.

In turn, business aviation users are likely to see reduced costs. As companies combine, they can start to achieve the economies of scale that have made other industries so successful.

The Impact on the Aftermarket

With fewer deliveries of new private jets in 2020, the aftermarket has grown. With pre-owned aircraft and older fleets come greater potential parts procurement needs, adding to the opportunity created by industry consolidation. Previously fragmented fleets will come together under a larger umbrella, with unique and often diverse parts requirements. Operators will learn lessons from airlines, taking a more proactive and operationally focused approach to their parts procurement.

There are also benefits for the aftermarket linked to the capital used to fund M&A activity. Many charter operators are utilizing debt to acquire companies and assets, and lenders may place requirements for Hourly Cost Maintenance Programs (HCMPs) in their terms. In addition, larger charter operators may see an increasing need for solutions such as engine leasing to regulate their costs and reduce aircraft-on-ground (AOG) time.

A Lesson From Commercial Aviation

Business aviation must be careful not to fall into the same consolidation trap experienced by commercial aviation following the Airline Deregulation Act of 1978. Just a few years ago, it was not uncommon to see two or more significant flag carriers per major country. But today, the airline industry is one of the most ultra-competitive businesses in the world.

Smaller airlines have looked to mergers and partnerships to survive, creating “supergroups” such as IAG or the Lufthansa Group. But this amalgamation of national brands has not been without its difficulties. As airlines integrated, they went through a period of disruption that diluted the passenger experience; consistency was lost attempting to create a whole out of disparate halves. Consolidation means less competition, and that can result in fewer differentiating factors for passengers, such as price or the onboard experience.

Opportunities From Consolidation

Consolidation makes strong players stronger and innovative companies become successful faster by weeding out inefficiencies. In business aviation, it creates the conditions for global 24/7 support, enriching the user experience and removing barriers to growth. Smaller or midsize players can also get a leg up in this competitive landscape, with technological advances that they otherwise could not afford.

Data transparency is another way in which business aviation will benefit. Larger, sophisticated “super operators” will utilize data more than ever to run their fleets efficiently. The companies that thrive will be those that can provide technology and solutions to meet this need.

However, as the make-up of our world changes, it won’t be solely the new business aviation powerhouses that succeed. Independent companies have a lot to offer and are becoming more creative and flexible in meeting client needs. Many are creating partnerships that give them the global reach of industry giants, with a more personalized experience.

Ash Reddy is vice president global strategy & corporate development at Jet Support Services Inc., an independent provider of maintenance support and financial services to the business aviation industry.