A new report from ACC Aviation investigates and analyzes the differing private jet operator business models and financial risks.
A 40-page report titled “Private Aviation Business Models and Financing Strategies” provides a good overview of the various business models.
However, if you are looking for answers and insights into who the winners and losers will be, you may be disappointed.
That’s really not a knock on ACC Aviation, which published the report.
The UK-based company offers consulting, leasing, and private jet charter.
Its report cited more than a half dozen articles from Private Jet Card Comparisons.
That includes our Private Aviation Deal Book, which has tracked over 100 events, including mergers, aircraft orders, bankruptcy filings, and the like, limited to flight providers that offer jet cards, memberships, sharing, or fractional ownership.
The problem, as noted by ACC on page 30 of its report, is not a surprise.
ACC writes:
‘The private aviation industry remains one of the least transparent segments of aviation finance. Other than Wheels Up and FlyExclusive, all operators included in our peer group are privately held, limiting the availability of public financial data and limiting the number of metrics against which they can be compared.’
ACC continues, “Insight into the sector is hampered by limited corporate disclosures; varied accounting presentations across different jurisdictions; and fragmented data from more than 10,000 private aviation operators, which are often structured in ways that make like-for-like analysis impossible.”
Not surprisingly, 40.7% of respondents to our annual subscriber survey say provider financial stability is a critical factor in choosing a program.
At the same time, 34.7% say, despite its importance, “it is very hard to truly know since most companies are privately held.”
The ACC report notes more than 30 operators have been involved in mergers, acquisitions, shutdowns, or entered bankruptcy, while at the same time, “operators have seen record-setting billion-dollar investments.”
The report provides a good high-level overview of the three operator business models: Operator-Owned, Fractional Ownership, and Aircraft Management.
It notes, “risk is never erased, just transferred.”
While the financial performance of owned-fleet operators is frequently scrutinized, no model is immune to risk.
Fractional operators have customer repurchase liability, as well as the risk that their fractional customers will continue to pay their monthly management fees.
ACC notes that both owned-fleet operators and fractional benefit from using customer money as financing.
For jet cards, it’s block-hour deposits; for fractional ownership, it is the sale of fractional shares.
Of fractionals, ACC writes, “In essence, clients pre-fund the fleet, providing the operator with interest-free liquidity and working-capital needs.”
Aircraft management may have less risk.
It also offers fewer rewards.
Managment companies are vulnerable to downturns in the charter market.
Many management companies rely on a cut of charter revenue from the aircraft they manage.
Management companies are also vulnerable as they have less control over their fleet.
READ: Private aviation is set to see an influx of more and bigger deals
The report also discusses the role of M&A.
“To supercharge growth and access new markets, private aviation businesses often rely on strategic consolidation,” according to the author.
“Operators frequently pursue growth via mergers and acquisitions to accelerate fleet expansion, obtain valuable AOCs, or capture vertical capabilities such as MRO or flight support,” ACC notes.
“Because these deals are capital-intensive, significant funding is required to complete and integrate acquisitions – and as a result, large debt raises are commonplace in this sector – and a key financial tool to achieving scale.”
ACC notes “debt is not inherently problematic.”
At the same time, for companies with visibility, it assesses, “low credit ratings are the norm.”
DOWNLOAD: ACC Aviation Corporate Jet Financing Report
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