Aviation Business Journal | Fall 2020 39 Cash Flow Continued from page 37 As Vick explained, business aviation has naturally attracted private equity given the industry’s long period of sustained growth since the early 1960s. “What you saw was an evolution in the development of aircraft, airports, MROs, management companies, and the FBO industry offering fuel and hangars,” he noted. “By the 1990s, the fractional ownership and member- ship programs came along. So really, for the past 60 years, there was a pattern of very rational annual growth, decade after decade.” He added that in the first decade of the 21st century, there was a substantial increase in production by the business aircraft OEMs prompted by rising global GDP and wealth accumulation taking place in the US, Europe, as well as Asia and the Middle East. “Then came the Great Recession, which disrupted the industry. Yet, even at the height of the Great Recession, there were still over 1,400 pre-owned transactions, and 600 new aircraft deliveries annually, adding to an installed base of over 17,000 business aircraft at the time. The installed base today is approaching 22,000 world-wide and growing,” Vick explained. Today, said Vick, private equity investors see acqui- sition opportunities where second or third generation long-time owners are seeking either an exit strategy or, alternatively, strong capital partners who understand the industry and are willing to provide capital for growth. “For instance, at AEI we are interested in service pro- viders and suppliers who are integral to the OEM supply chain, which includes businesses such as Part 145 MROs, parts manufacturers, component overhaul providers, interior refurbishment, avionics repair, Part 135 opera- tors, and management companies, just to name a few,” he remarked. “We don’t focus on just one element. There are many opportunities to provide growth capital. If you break it down, there are about 30 verticals and 30-40 sub-verticals in the industry presenting those opportuni- ties.” The verticals, Vick added, are the supporting ancil- lary businesses. In aviation they include MRO, aircraft management, charter services, and FBOs, to name just a few. The sub-verticals support the verticals, and include supply chain companies, manufacturing parts such as wire harnesses, landing gear, tires, wheels, brakes, actua- tors, and avionics. Asked about a role for private equity in airport devel- opment, particularly hangar properties, Vick said that he would expect continued interest in this by private equity firms. “We would have an interest in looking at this, but there will be more opportunities for those types of investments through the acquisition of existing service providers, such as FBOs already on the field, that have the local and state relationships necessary to approve development.” He also revealed that AEI is looking closely at AAM, particularly through its early-stage AEI HorizonX venture capital fund, although the company’s focus is more on the power plant and supporting supply chain. As for potential for private equity in SAF, Vick reported that a growth opportunity is there. “SAF is here to stay,” he remarked. “Capacity is quite small right now, so that presents an opportunity for private equity.” According to Dr. Dirk Laukien, Founder and Active President of Black Forest Ventures, “The general avia- tion business has always had high barriers to entry,” which he said is what makes it more appealing to inves- tors. The Woodlands, Texas-based private equity firm’s portfolio includes the Galaxy FBO chain—currently with three locations in Texas—along with charter management company Wing Aviation and Paradigm Helicopters. Laukien also cited the popularity of fractional ownership and mem- bership models attracting more business and leisure private flyers as add- ing to the appeal of general aviation “The popularity of fractional ownership and membership models in attracting more business and leisure private flyers is adding to the appeal of general aviation to private equity investors.“ $
