When European private-equity firm Permira acquired Jet Aviation from the Hirschmann family five months ago, some industry observers speculated that the new money people would spin off some of the Swiss-based company’s varied business components, the better to help digest their substantial bite into the business-aviation apple.
Instead, Jet Aviation Group CEO Heinz Köhli last month announced the acquisition of U.S. maintenance, completions and FBO icon Midcoast Aviation from Sabreliner Corp., for an unrevealed sum. The message was clear. Rather than retrenching and taking time to reflect on exactly what it had bought in Jet Aviation, Permira is marching aggressively forward–using its considerable financial resources to expand Jet Aviation’s presence across North America and broaden an already widely diversified worldwide business-aviation service portfolio.
Theo Staub, Jet Aviation North America president and COO, said that expanding to the central U.S. is a harbinger of more expansion to come. “First, we made the jump from Switzerland to the East Coast. Now, with solid financial backing, we are in the Midwest. Looking forward, it makes sense, also, for us to be on the West Coast,” he said. Staub added that the Los Angeles area, where there are several top-tier independent FBOs, heads his priority list.
Under terms of the deal, Midcoast will retain its name and identity, adding the words “a Jet Aviation company” to the signage at its St. Louis Downtown Airport and Lambert-St. Louis International Airport locations. Current management will remain in place, as will all 850 employees. In fact, a new 150,000-sq-ft hangar scheduled for completion this year will create the need for at least another 100 workers to meet rising market demand for Midcoast’s maintenance, completions and refurb services.
A Valuable Investment
By way of estimating Midcoast’s value, company president Kurt Sutterer revealed last fiscal year’s revenues as $140 million. Citing strong growth, he estimated the current fiscal year (which ends in June) will see revenues of $200 million. With the addition of Midcoast, Jet Aviation expects its worldwide net sales for Fiscal Year 2006 to be $800 million.
The market value of an FBO or a maintenance shop is often expressed as a multiple of its earnings before interest, taxes, depreciation and amortization (EBITDA). Not too many years ago, multiples of three or four times EBITDA were considered good selling prices. Over the past few years, however, private equity firms have driven up the values of FBOs by bidding up to double-digit multiples.
The gold rush into business-aviation investing is driven, in part, by financial good times– long order backlogs at the OEMs and dwindling inventories of used business jets. Another factor is the perceived “fragmentation” of the FBO industry–a preponderance of independent businesses rather than chains. The belief is that consolidation will reduce duplicate overhead and strengthen collective purchasing leverage.
Torsten Vogt, Permira’s New York-based representative, was present at the press conference. While he was forthcoming in his explanation of why the powerful European finance house (one of the top three in available funding, he said) was bullish on Jet Aviation, he was tightlipped when asked to hint at the price paid for Midcoast. He described it as “substantial, but not exorbitant.” He added that Permira’s investors consist of corporate clients and wealthy individuals on both sides of the Atlantic.
Jet Aviation North America already has well established foot-holds on several business-aviation battlefields, including aircraft sales, management, charter, FBOs and– to a lesser degree–maintenance and completions at its West Palm Beach, Fla. location.
Jet Aviation was founded in Zurich, Switzerland, in 1967 by the late Carl Hirschmann. Midcoast Aviation began as a small FBO at St. Louis Lambert Field in 1971. It is currently a factory-authorized service center for Bombardier, Dassault Falcon Jet and Raytheon Aircraft. Pending the usual government approvals, closing is scheduled for later this spring.