Relatively speaking, aviation is a young industry. It's also an industry in transition. More and more, private equity firms are turning their attention and dollars to fixed base operations (FBOs), offering once family-owned and operated businesses an opportunity to move on, as some say. Both Jim Haynes, president, The Aviation Group, a consulting firm which works with private equity firms, and Blake Fish, president and CEO, Quantem FBO Services, LLC, a private equity firm, agree that this shift is a positive one for the industry.
Haynes is a former FBO owner and airport operator. "A lot of what we've done recently," he says "has been work for investment companies, primarily the private equity industry."
According to Haynes, there are a number of private equity firms which have made investments in the general aviation industry in recent years, including The Carlyle Group, Macquarie Bank, and CapStreet Group. "The most visible, because it's probably one of the largest private equity companies, is The Carlyle Group, which owns Piedmont-Hawthorne, Standard Aero, Associated Air Center, and most recently, they acquired Garrett Aviation from General Electric," says Haynes, who views this investment as a positive for the industry.
"I see the industry transitioning from the original companies which were family owned, extrepreneurial-owned companies, to companies that are institutionally owned and managed by professional managers."
Atlantic Aviation is one of the best examples of this, says Haynes. Atlantic was founded in the early days of aviation by the DuPont family. It was run by various family members until the late 1990s when Lake Mason purchased the company.
"At that point," says Haynes, "Atlantic was a troubled, dysfunctional company. There was employee unrest, they had no real focus on their business. The main thing that Lake Mason did is they brought in a team of professional managers... That team turned Atlantic around."
Atlantic was subsequently sold in two pieces, one to ABS Capital, a private equity firm, and the other to Dassault Falcon Jet.
ABS Capital made the decision to focus Atlantic on line services. "They sold off their charter, aircraft sales, and aircraft management business," explains Haynes. Eventually, Macquarie Bank purchased Atlantic Aviation, which is now part of its holdings. Macquarie Bank also owns AvPorts. Adds Haynes, "They have taken both of those companies and formed it into a publicly held company called Macquarie Infrastructure Company and that company is listed on the New York Stock Exchange."
Fish agrees that private equity investment is a positive for the industry. "It provides a lot of credibility to the industry," he says, "in that FBOs are thought of more as a financial business and not just an avocation." Fish, in conjunction with a financial partner, purchased Byerly Aviation in February 2005.
The Peoria, IL-based full-service FBO was an attractive acquisition, says Fish, because of its location, staff, and customer base. "It was just the right fit for us. And that's sort of where we're targeting our resources: family businesses that are now wanting to go to someone else's control."
Evolution of an Industry
The evolution of the entrepreneurial-owned, family owned businesses to a much larger business that is well-capitalized is the "history of business," says Haynes. "Some companies will always be small, family owned companies because they are in a market and that's the size of that market and they can't expand.
"I'm sure that 50 years ago at Teterboro Airport the businesses were probably fairly small. Seventy-five years ago Wilmington was a small airport, not a lot of activity. But as the size of the investment that's required to service planes as large as the BBJ, the Gulfstream V - there's a need for capital." Haynes adds that the FBO industry is a relatively young industry. He calls this shift the "natural evolution of things."
So is there room in the general aviation industry for both private equity and traditional, entreuprenuerial-owned FBOs? "Absolutely," says Haynes. "In general aviation, where you have thousands of small airports, where you probably will never have the need for large, expensive operations. There will always be small, family owned businesses, and there will probably always be larger family owned businesses. But there may come a time when a family recognizes, for whatever reason, the business has outgrown their ability to continue to operate it. And so this is an exit strategy that hasn't always been available."
"There will still be a lot of family owned businesses because there are a lot of places where that just makes sense," says Fish.
The reasons private equity firms are interested in general aviation, says Haynes, "aren't the reasons I got into aviation or anybody else... We got into [the business] because we like to fly airplanes... I think an institutional investor is going to look at an investment opportunity for one thing: What's the return on my investment? I think the only reason [private equity firms] are interested is they must feel there's an attractive return on their investment."
Benefits to FBO, Airport
Again, however, Haynes reiterates that this trend is only positive for FBOs as well as their airport landlords. "I've spoken to many airport managers," he says, "to have a well-capitalized, professionally managed company on your airport as a service provider or FBO is a plus. I'm not saying you can't have an entrepreneur who's going to do a good job at your airport, but to have an institutional investor... I would be very surprised if any airport manager or airport authority wasn't delighted to have a [private equity firm] be the owners of that business."
Access to the capital markets is a definite benefit for private investment, says Haynes. "I own a business and my access to capital is what's in my pocket and what I can borrow from the bank. When you have a larger company owned by an institutional investor, now you open up all the capital, the debt and equity markets, all kinds of equity, all kinds of debt, public and private."
Haynes says that the professional management expertise that private equity firms can bring to a business is equally as important as the capital. "They have a lot of experience running many other businesses that may be similar or dissimilar," a positive addition to the FBO or other aviation services business.
Beyond capital, economies of scale is where Fish sees benefit for both the FBO and the airport landlord. "In some cases," he says, "there's an ability to provide resources, subject matter expert resources, for safety, security, environmental, ground support, etc., that a sole proprieter may not be able to afford. Whereas if you have a chain, you have the ability to spread those costs over multiple locations."
Fish is quick to add that access to capital doesn't make private equity investors more qualified to manage an FBO. "These sole proprietors have done a good job building their businesses," he says. "Many are just now in a place in their lives where they decide to move on. It's not a matter of a whole bunch of smart guys with money coming in and telling them how to do their jobs."
Fish says that there could be hurdles with private equity, particular if investors focus too much on revenue, foresaking service. "It's possible that there could be the tendency to worry only about the money and not so much about the industry," he says. "But we've still got to serve the customer. If we lose sight of that because we're focused on nothing but the return, we're doing the industry a [disservice]."
Both Fish and Haynes expect consolidation in the industry to continue, while Fish says his company will continue to look for acquisition opportunities.