Hangar8 growing fast and still looking for acquisitions
Hangar8’s dedication to acquisitions and expansion into emerging markets has seen it generate over $12 million in annual profits.
The planned acquisition of Air Charter Service may have fallen through, but Hangar 8 (Lon: HGR8) is growing fast, with 2013 profits over £8 million ($12 million). Hangar8’s gross profits for the last six months of 2013 were up 25 per cent as the company benefited from long-term contracts and the International Jet Club acquisition.
Organic expansion and more take-overs
Three years after listing on the London Stock Exchange’s Alternative Investments Market, Hangar8 may look like a very different company, but Dustin Dryden, the aircraft operator’s founder and CEO, believes it is just a question of scale. “What we do now is really what we always did, but now we do it on a larger scale, so it is more noticeable,” says Dryden.
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Like other private aircraft managers – such as TAG Aviation, ExecuJet and Gama Aviation – Hangar 8 makes money from a range of management services. This includes hiring and training pilots, supplying cabin crew and flight planning, providing maintenance and chartering-out aircraft when they are not being used by the owner.
As well as growing its aircraft management fleet organically – even its fiercest competitors admit that Dryden is extremely good at pitching prospective owners – Hangar8 has acquired three companies, most significantly International Jet Club and its nine long-range aircraft in 2012, and created new divisions focused on maintenance and air medical flights. International Jet Club’s portfolio was very different to Hangar8’s; only one of the aircraft is available for charter and it is predominantly used by a well-known former politician.
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When Hangar8 floated in 2010, it had a fleet of 19 aircraft, consisting mostly of Hawkers and mid-size jets. Now it has 34 heavy aircraft.
Long-term charters, maintenance and air medical
The one area where Hangar8 can be forgiven for not growing is with charter. Demand for business jet charter fell significantly in 2008 and has not really recovered. Hangar8 was quick to spot this trend early and shifted its focus to long-term lease contracts with oil and natural resource companies in Africa.
Although the rates for longer-term charter are lower than hourly rates, these contracts guarantee that aircraft are profitable. In 2013, short-term charter accounted for just 9 cent of gross profits with 32 cent from longer-term contracts.
Hangar8 does not own the aircraft that are being leased. In fact, in most cases they are aircraft that banks originally financed for other owners, which were then returned to them (sometimes after being repossessed). These contracts give banks an opportunity to earn some money while they wait for demand for business jets to return. Dryden says there is the opportunity to close more of these contracts.
The company has also expanded its maintenance activities. It grew its engineering team to 22 in 2013, from 10 in 2011, and is now less reliant on other providers.
The other market where Hangar8 wants to grow is providing air medical services, particularly in Africa. Hangar8 first became interested in this market when it was looking at buying South African operator Stargate Aviation in 2011 and saw how few aircraft are available for medical repatriation.
In 2010, Hangar8 said one of the main reasons for floating would be for acquisitions. It has now completed three take-overs, Starlite Aviation, International Jet Club and Oasis.
In February, the company announced that it was considering acquiring charter broker, Air Charter Service, but the deal fell through.
“Our door is always open to potential companies. We think there is probably a two year window of opportunity to make more acquisitions,” said Dryden. “The industry is improving but there is a way to go still.”
Committed to Malta
Hangar8 announced a joint venture with Maltese operator Maleth in 2011, but this ended and in 2013, it bought Oasis Flight Malta, another Maltese AOC holder. “There are real benefits of basing an operator in Malta and they were not available to us with Maleth,” says Dryden. “With Oasis we get 100 per cent of these and it was too good to be missed.”
Dryden also expects most new deliveries to be registered in Malta. “Malta makes sense for a corporation tax perspective but most importantly you can get firm VAT guidance for customers buying aircraft. The rules are very clear in Malta,” says Dryden. “VAT rules in the UK are extremely grey and open to interruption and that is not a situation we want to put clients in. So, we are very adverse to importing aircraft into the UK.”
Dryden does say that there are still benefits in much of Hangar8 being based in the UK.
Three years on
After founded the company in 2003, Dryden says that being listed gives Hangar 8 an advantage and that he does not find it particularly frustrating (it may have been a good day). It also helps that the company’s share price has risen from £1.58 at launch to £2.60 in March 2014 and that it is now planning to pay a dividend. Dryden still owns 42 per cent of the company.
Corporate Jet Investor’s view: Don’t forget about charter
Because it is listed, Hangar8 gives us rare insight into the state of aircraft management companies. Although its results are positive, this is still a tough business. The European business jet fleet is growing, but not as fast as it was before 2008.
In the past, aircraft operators tended to make most of their profits from charter, but this market is still depressed. Hangar8 has switched much of its business to management (particularly through buying International Jet Club) and longer-term leases. It deserves credit for spotting the long-term lease opportunities and retaining these contracts in tough African operating environments.
But it still has aircraft available to benefit from a pick-up in charter demand. If this happens (although it is unlikely to do so before 2015 at the earliest), the company’s profits could rise very fast, particularly as the costs of servicing charter are very low. An extra hour of charter per aircraft per month would make a big difference to Hangar8’s profits.