Fitch affirms Flexjet, Sentient parent OneSky Flight's 'B' rating

While margins at OneSky are being pressured, Fitch says it expects ‘healthy levels of operating cash flow’.

By Doug Gollan, January 7, 2023

While margins at OneSky are being pressured, Fitch says it expects ‘healthy levels of operating cash flow’

Ahead of its transition to Flexjet, Inc., as part of its pending SPAC IPO, Fitch Ratings has affirmed OneSky Flight LLC’s Long-Term Issuer Default Rating (IDR) at ‘B’

The rating outlook is Positive, according to the agency.

OneSky includes Flexjet, Sentient Jet, PrivateFly, and FXAir, among other brands.

Fitch says that the rating affirmation and outlook reflect OneSky’s healthy revenue growth over the past year, OneSky’s solid market position, and sustained positive trends in the private aviation sector.

It expects more than $2.2 billion in 2022, “reflecting healthy underlying demand.”

Fitch notes that OneSky’s ratings are tempered by lower operating margins last year related to higher third-party charter costs and increasing balance sheet debt.

Flexjet fractional sales

Revenue growth last year was driven by higher fuel surcharges, increased fractional sales, and higher management fees. It continues the company’s “track record of meaningful growth that continued through the pandemic.”

The percentage of Private Jet Card Comparisons subscribers in fractional ownership programs tripled year-over-year.

Fitch sees “moderating growth going forward. However, further top-line growth is anticipated as private aviation generally exhibits some insulation from broader macroeconomic pressure.”

Pressure on margins

Margins in 2022 are expected to be “down modestly from 2021 levels due to increased utilization of OneSky’s third-party charter fleet.”

The rating bureau also cited “some pressure from general inflationary costs such as wages. These costs are partially offset by a reduction in rental expenses as OneSky has purchased more of its core aircraft.”

EBITDA margins are expected to remain in the high single digits through its forecast period.

‘Healthy levels of operating cash flow’

The fractional and jet card seller will continue to “generate healthy levels of operating cash flow through the forecast period. Free cash flow will largely depend on aircraft purchasing activity, which is driven by customer demand for fractional shares.”

Still, “free cash flow was sharply negative in 2021 and likely will be in 2022 as consequence of the large purchases of aircraft. Fitch expects the company to maintain a healthy liquidity balance through cash on hand and availability under its revolver. Fitch expects year-end liquidity to be $250 million to $300 million, comprised of cash on hand and revolver availability.”

“OneSky’s balance sheet risk is limited with regards to its aircraft purchases. Under the fractional ownership model, the company is able to sell shares of an aircraft well in advance of that aircraft’s delivery, allowing the company to collect cash upfront and minimize its own capital outlay. Although OneSky will remain less asset-intensive than competitors like VistaJet, the company plans to grow its owned core fleet to support future growth,” the Fitch report notes.

Cyclical industry

It adds, “The business jet industry is cyclical due to the luxury nature of the product offering and the availability of commercial flights as a substitute. Similarly, while aircraft sales were less affected, total flight hours were flat/slightly down in the 2014-2016 time period due to higher fuel prices. These risks are partly offset for OneSky by the management fees that it charges its fractional owners, which are fixed through the life of the contract and do not depend on the number of hours flown, providing a steady source of revenue. However, fractional sales of new aircraft, jet card purchases, and charter flying are all vulnerable to economic cycles.”

Fitch said it is discontinuing Flexjet coverage for commercial reasons.

Related Articles

Visit DG Amazing Experiences

Find the perfect solution for your private aviation needs

Make the right decision

If you want a program-by-program comparison of more than 500 products from more than 50 companies covering 65 points of differentiation and over 40,000 data points.