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Private Jet Insider

Welcome to the nineteenth edition of Private Jet Insider.

Today's newsletter is going to make some people mad. That's ok. That's kind of the reason you read this newsletter in the first place.

Today we're going to talk about a beloved topic: Private Equity. Before you automatically click out and delete this, give it a skim. I think you might find some interesting tidbits of who's doing it right and who's doing it... well, "right" from a fund returns standpoint.

If you want to be hawkish on costs in your business like Private Equity, you should talk to today's newsletter sponsor, Ramp. (I'm sorry Ramp team... it was too easy of a joke. Please don't fire me.)

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Private Equity and Private Aviation: A Love Story

One of the most polarizing industries in the world is private equity. And yes, a few private equity folks read this newsletter.

Private equity partners love private aviation. It helps them close more deals, and sometimes it just feels good to look the part. In every movie about private equity, there is always a scene on or around a private jet. It is a symbol of status and power, but also a practical tool for getting to the middle of nowhere where you just bought a manufacturing plant.

We all know the private equity playbook. Deploy capital into a platform company, bolt on strategic acquisitions using deep pockets, drive costs down to increase EBITDA, and aim for EBITDA multiple expansion through scale so the next PE firm can buy it at a higher valuation.

But private equity hasn’t stayed on the sidelines as a customer of private aviation. They’ve rolled up their sleeves and started putting capital to work in the industry itself.

And it is not just the large, household-name firms. Mid-market players are getting involved, along with "micro-PE" groups trying to roll up smaller businesses to create the next platform company that a larger firm can acquire.

We are seeing all of these strategies at play in private aviation right now. Here is a quick list to set the foundation (I’ll try to keep it brief).

Maintenance and Repair Operations (MRO)

MROs are where jets go to get fixed. The FAA has strict regulations for these facilities, especially around mechanic qualifications and maintenance standards. These fall under Part 145 of the Federal Aviation Regulations (FARs).

OEMs operate their own MROs, but the focus here is on independent MROs. Right now, there are two major private equity-backed platform players in this space, along with a lot of activity happening further down market.

StandardAero

StandardAero is a very diversified business servicing commercial airlines and Government and Military, but has Business Aviation as a vertical. Here's the history.

West Star Aviation

Here's one that is close to home (literally, there is a West Star facility at my home airport, KCHA). It's currently for sale, and rumored buyers are Arcline Investment Management and Bain Capital. A Brief History:

P.S. a total rumor, but I have heard whispers that Bain Capital is the front runner on West Star and it'll likely transact this year.

Honorable Mentions

There are a few other larger household names in Business Aviation MRO that deserve calling out as well.

Stevens Aerospace and Defense Systems is privately held by The NTC Group since 1989.

Duncan Aviation is family owned and multi-generational.

Elliott Aviation took on Private Equity from Summit Park in 2020 and have acquired Four Points Aero Services in Dallas in 2022.

Fixed Base Operations (FBO)

Think: private terminal, aircraft parking/hangars, and a gas pump. In essence, that's what an FBO is. There's two behemoths.

Signature Aviation

Did you know that before 2019, Signature Aviation was called British Belting and Asbestos (BBA) Aviation? That's a fun fact. They now operate 200 FBO locations. Convoluted background, but the abbreviated timeline is:

Atlantic Aviation

The second-largest FBO chain is Atlantic. It's not quite as large as Signature, but it is still a behemoth specifically in heavy general-aviation airports. Here's a brief history.

Middle Market is Taking Notes

When I try to explain how private equity works to my wife, I tell her it’s like reverse Russian Dolls. There’s a small company, and that one gets tucked into a slightly larger one, and so on.

I know the analogy breaks down a bit, starting with the fact that Russian Dolls are almost always female and private equity is about 84 percent male. But the point still stands.

The middle market is seeing a surge in activity, largely because of the moves major players have made over the past five years. Go back over the chart and take a look at the big private equity deals.

• Standard Aero: 2018
• Signature and Atlantic: 2021
• West Star: 2022

I have weekly conversations with middle market firms asking about building hangars, rolling up charter companies, or moving down-market in the FBO space. And there is real activity happening in all of these areas.

Here are a few examples that come to mind.

• (Exited) Lynx FBO network built a 9-location roll-up in 2016 and sold to Atlantic in 2021
• ​The Blackhawk Group, which has rolled up and vertically integrated in the turboprop market.
• JetLinx took funding from Redbird Capital in 2020
• Elevate Aviation Group appears to be backed by PE or PE-light
• Modern Aviation (Tiger Infrastructure Partners) is doing a buy-and-build strategy in FBO and have 6 locations
• JSSI has recapped twice and acquired software to support their maintenance support programs
• Hawthorne Global Aviation (Moelis Capital) is a regional FBO and charter operator with PE backing

This isn't including all of the companies in the services industry (brokerage, finance, insurance, etc.) that I know are having PE conversations regularly (because it seems its all we talk about at happy hours).

I get it... It's a Sexy Space

A family office manager once put it to me like this: private aviation has the "cocktail factor." When you're at a cocktail party talking about recent investments, saying you just backed a private jet company will always land well with the crowd.

We've seen this play out (read more about this topic: here and here).

Private equity tends to be more disciplined than other investment verticals. There is a tight timeline and a strong demand for a return on investment. I think this is why so much attention has shifted toward the "hard skills" sectors of the industry, like FBOs and MROs. These businesses often have a real estate component, along with a geographic moat that provides a natural barrier to competition... something that is less intrinsic in other areas of private aviation.

Does it make it better?

People love to hate on Private Equity. And let's face it: Private Equity has f'ed up a lot of good things.

PE tends to have shorter time horizons, and move to maximize profits in a short window of time.

An easy place to see this: event fees.

F1, Masters, SuperBowl, The Inauguration Vegas on random weekends, Kentucky Derby, Hamptons in the summer, and a lot of other events have these "event fees" that have only recently gotten out of hand.

The Inauguration had a $10,000 fee PER STOP at IAD.

Yes, you have to pay the line guys extra to work late on the SuperBowl, but at a certain point you have to wonder if what is essentially a duopoly is actually good for the consumer.

Like, here's the list of FBO's for Teterboro.

In the MRO world, there is little sense of urgency. I have a client who has had an aircraft stuck at an MRO mentioned in this article for 14 months. Yeah, there's parts issues but we're a bit past blaming everything on supply chain...

Is Private Equity Inevitable?

This is an internal struggle question for me. I think about some of the smaller FBO operators who have 1-3 locations and don't have a succession plan. They are prime targets for private equity or Micro-PE to roll up.

My friend Brent Beshore has created a PE shop called Permanent Equity designed to be the opposite of traditional PE. They honor the legacy of the founders and hold businesses for the long-term. They don't just say this, their fund structure aligns their incentives with that vision. It's not a 7-10 year play.

I wonder, in closing, if there is a place for that model in Private Aviation. Where the character and spirit of the business doesn't get lost, but instead gain resources and backing to grow, become more professional, and honor the spirit of aviation. Excellent customer service, focused on the long-term, and building amazing companies.

Until next week,

Preston Holland

P.s. Send this to your favorite PE bro and tell them that they got a shoutout in here.

Master's Stories

Ok I promised some Master's Stories a few weeks ago. I'll share one this week.

A friend of mine was flying in to the masters for a practice round and the 1st round. They had booked their parking spot 4 months in advance, and were going to take off to get into Augusta. When they were about to leave, they were notified that everyone was having 4-5 ground holds just so that they could land. If you got up in the air and started circling, you might have to go to airports 90+ minutes away. Another airplane leaving from their airport took 9 hours to get down there on the same day. Luckily, my friend was able to call in a favor and shorten the wait time.

I have another story next week of the way some pilots were getting around that issue... diabolical. See you next week.