Private aviation execs say operator M&A fraught with risks

Mergers, acquisitions, private equity, and taking on outside investors in the private jet operator space are high-risk and often have limited rewards.

Yet, for the long tail of small and medium-sized operators, it’s often the only way to scale up in an industry where organic growth takes years and decades.

Moreover, UHNW investors are often drawn to private aviation for its glamour.

That’s according to charter operators and deal executives speaking earlier today at Corporate Jet Investor in London.

Private Jet Curb Appeal

George J. Priester Aviation’s Andy Priester told attendees, “The truth is, from the outside, we have an exciting, sexy business.”

However, he noted, “What we do is high profile, and there is notoriety, but people sometimes don’t understand our business, and that skews their perceptions.”

Dustin Cordier of StepZero Coaching said, “It’s an industry where the buyer doesn’t necessarily know what they are buying.”

He asked, “Are you buying a relationship? Are you buying the cash flow? What exactly are you buying?”

Making it Work

Cordier said the diligence period can focus on very different things based on the buyer’s wants.

For example, in buying management companies, Priester noted that contracts with aircraft owners typically allow them to exit with as little as 30 to 90 days’ notice.

Clairfield International’s Angus Russell told attendees that it’s critical to incentivize the people who manage client relationships to stay in relationship-driven business models.

Priester, which has acquired two management and charter companies, said his approach is to meet with managed aircraft owners alongside the company’s principal to share the joint vision of the transaction.

Priester noted that they have kept the names of the acquired companies in both acquisitions.

He said cultural fit is crucial.

He said buyers who don’t have the cultural peace nailed down at their own company “have the risk of really blowing up your operation.”

“So far, we’ve been really, really successful,” he said.

However, he noted that even if everything is a fit, 20% of the workforce will not buy-in and will eventually exit.

Cordier pointed out even seemingly smart strategies like gaining efficiencies by combining back-end operations have risks that impact culture.

How Much Is It Worth?

Regarding valuing targets, Russell said another difficulty is “a great variety of business models. There is a variety of sizes of companies, margin points, and vulnerabilities.”

He told attendees about EBITDA-driven multiples, “I’m not clear that’s the right way to look at these businesses. I think it’s really a focus on cash and the level of customer relationships you think you can maintain post-acquisition, and that backfills into what you are prepared to pay for a business.”

Not all panelists agreed.

Gama Aviation PLC’s Marwin Khalek said deals often happen based on strategic motivations.

Khalek, who sold the U.S. arm of his management and charter company to Wheels Up in 2020 as part of a half-dozen acquisitions by the now Delta Air Lines-backed flight provider, said, “The biggest criteria is a willing buyer and a willing seller.”

He added, “That’s what drives the valuation ultimately in any sector. Once you’ve worked that out, you can reverse engineer whatever matrix you want to justify the deal, whether it’s cash flow, multiple, etc.”

Urge To Merge

Why do so many deals happen?

Priester believes sellers sometimes “get really creative with data to lure investors in.”

However, Russell countered, “You’re probably going to be selling to a sophisticated buyer…Just putting on scale for scale’s sake will be seen through.”

He said private equity is exceptionally disciplined.

Priester was bearish about the constant flow of dealmaking.

He warned the industry “is littered” with companies whose transactions didn’t pan out.

Don’t expect M&A to stop anytime soon.

“Organic growth is so slow in this industry…if you want to put scale on, you’re going to have to buy businesses,” Russell said.

What’s more, “scale absolutely matters. It could be that your business is worth more to somebody else because they can get more profit from it because they have a bigger platform.”

Priester, who focuses on managed fleets, added, “My personal opinion is you can’t own airplanes and make money. I’m not saying that’s not the case in the short term, but in the long term, it’s very difficult to do, and very risky. I think consolidation among those operators is fraught with even more risk for the potential acquirers.”