Aviation Business Journal | Fall 2020 37 Cash Flow Continued from page 35 the global financial crisis—through 2021, US business jet departures grew at a compound annual growth rate of 3.3%. COVID, he remarked, was “a brief interruption to the multi-decade thesis that business aviation is highly correlated with economic activity, with activity levels contracting sharply” in mid-2020. “Continuing health concerns and ongoing disruption in the commercial airline market have created a perfect environment for business aviation to introduce itself to a whole new customer base during the pandemic,” Guthorn said. “For example, leisure demand for business aviation use has risen considerably since 2020, and while some of this demand may revert to commercial airlines eventually, a meaningful portion of new customers will remain in the market and continue to embrace business aviation, providing further support for the growth of the market.” Asked about any role for private equity in airport development, Guthorn’s response was that while private equity investors have been enthusiastic about invest- ments in airport tenants—namely FBOs and MROs—the US market has not yet presented a broad set of oppor- tunities around the redevelopment of whole airports. “There is an entire, well-capitalized universe of infra- structure investors who, compared to traditional private equity investors, are willing to invest on longer time horizons and have more modest return expectations that would whole-heartedly welcome a greater embrace of airport privatization in the US.” Along with that, Guthorn said that he does not expect to see private equity investors play a role in advanced air mobility (AAM) or sustainable aviation fuel (SAF). “Companies pursuing cutting-edge new technolo- gies that are still pre-revenue, such as AAM vehicles or hydrogen propulsion, would be more the domain of venture capital (VC) rather than private equity. The typi- cal VC investor has the appetite for and is structured to pursue earlier-stage bets in unproven markets.” “Business aviation is a growing business that has proven to be resilient and increasingly accessible for new customers,” explained Greg Blank, Senior Managing Director at New York-based Blackstone Infrastructure. “Private equity and infrastructure investors are turning their attention to this space given there is a compelling customer value proposition, strong long-term growth fundamentals, and declining barriers to entry.” As Blank pointed out, private equity funds and bank loans can both be used to fund growth projects. “However, private equity and infrastructure capital have five distinct advantages—the ability to add value, flexibility, risk toler- ance, long duration of capital, and certainty of funds,” he said. “That is not different for business aviation.” Blank noted that Blackstone Infrastructure believes that the private equity and infrastructure community is interested in all trends within business aviation, includ- ing AAM support infrastructure and, potentially, start-up AAM original equipment manufacturers (OEMs). “These trends are critical to both making sure current invest- ments are well positioned to grow in the future and to identifying new potential investments,” he pointed out. Two primary factors, according to Blank, are contrib- uting to interest in the general aviation sector by private equity funds. “First, there is COVID and along with that, a decreasing cost of entry has introduced a new cohort of customers to private aviation, many of whom are expected to continue using it,” he remarked. “Second, private aviation is an industry in transition, particularly on matters relating to the future of mobility and sustain- ability. Private equity is uniquely positioned to facilitate this transition as our long investment horizons allow us to do well by doing good.” Shawn Vick, a Partner in AE Industrial (AEI) Partners in Boca Raton, Florida, pointed out that private equity has been active in business aviation for decades. “Business aviation has significant industrial infra- structure, and the industry fundamentals are strong. The demand is there for access to private aviation, and will only increase throughout the decades ahead,” he remarked. As a result, said Vick, private equity has over the pre- ceding decades taken significant stakes in large service providers. He cited Blackstone’s recent acquisition of Signature Flight Support and KKR’s purchase of Atlantic Aviation as examples. “These are both very large-scale service providers with several hundred FBOs between them,” he remarked. Continued on page 39
