The business aircraft operator M&A boom is over
The past few years have not only been a sellers’ market for aircraft owners, they have also been a great time to sell aircraft operators. With demand for business jet charter at record levels and order books strong, buying a rival was the quickest way to boost supply. As with aircraft, the market has swung back.
Since 2019, nine of the 20 largest Part 135 US operators have been acquired by competitors. Five were bought by Vista Global – which also acquired Air Hamburg in Europe last year. Jet Edge went from being an acquirer to being acquired.
Wheels Up bought four of the top 20 operators. It also acquired Air Partner for $110m less than a year ago. Wheels Up reported its figures for 2022 yesterday. While it grew last year, the company’s key focus is on becoming profitable next year. It is much more focused on integrating its past acquisitions than looking for new ones. While Thomas Flohr likes surprising the market, the same appears true at Vista Group.
“In the last few years operators have been focused on securing supply to meet the increased demand from both new and existing customers. Now that they have secured additional lift, they will be focused on optimizing their fleets and infrastructure to make operations as efficient as possible,” says Bobby Femia, aviation investment banker at Jefferies, the investment bank that has worked on the most business aviation mergers. “We are likely to see more acquisitions where operators are investing in technology, maintenance or software enhancements.”
Flexjet’s acquisition of sister Directional Aviation company Constant Aviation is a clear example of this. Constant Aviation, a well-regarded independent maintenance shop, will now focus on supporting the Flexjet fleet.
In a statement announcing the deal, Jay Heublein, senior vice president maintenance Flexjet, described the acquisition as “one of the most significant infrastructure investments in the history of our industry”.
This might sound like an exaggeration – especially for a deal involving two sister companies – but it is a fair comment. There are two big reasons why Flexjet wants Constant.
First, every operator has faced challenges keeping aircraft flying in the past few years. Flexjet, which now plans to list on the NYSE American exchange as part of a SPAC, believes that having its own maintenance division – which includes 28 mobile aircraft on ground teams – is an advantage.
The second, most significant reason, is that in recent years only manufacturers (and their subsidiaries like Jet Aviation) have made big maintenance investments as they try to grow their services businesses. While it makes sense for OEMs to do this, not all customers want them to have this power.
Directional could easily have sold Constant to a manufacturer. But instead, as one of the largest operators in the world, Flexjet can continue to push back against manufacturer dominance just as airlines with large MROs – such as Delta TechOps or Lufthansa Technik – do. Like these airline divisions, Constant Aviation says it intends to stay in the retail market space and keep its brand.
The last three years have been dominated by operators looking for supply with 2023 focused on efficiencies. You will know that demand for charter falls when they start buying demand – as Directional did with Sentient Jet in 2012. One major broker that was in talks to buy competitors, says they are holding back on any acquisition for the first half of the year until they can judge customer demand.
It is not always a mistake to buy at the top of the cycle. General Dynamics’ acquisition of Jet Aviation in 2008 was a good one. But like aircraft owners, sellers of operators in 2022 can be happy with their timing.