Allied finalizes deal for Mercury’s FBOs

 - March 22, 2007, 7:23 AM

Allied Capital, a Washington, D.C.-based business development firm, last month finalized a complex, controversial $81 million deal (including closing costs) to acquire the Mercury Air Centers (FBO) division of Los Angeles-based Mercury Air Group.
Mercury Air Centers operates 20 FBOs nationwide (including the newly acquired Flight International facility at Newport News, Va.) and was one of four Mercury Air Group divisions. Allied also has agreed to commit to funding $10 million in senior subordinated debt for future working capital and construction commitments.

“The fixed-base operations industry has very attractive economics for established companies,” said Allied Capital chairman and CEO Bill Walton, when he announced his intention to acquire Mercury last October. A spokesman for Mercury told AIN that Allied intends to continue to operate Mercury Air Centers as a going concern, rather than sell off the FBOs piecemeal. No information on planned management changes was available at press time. John Enticknap has been president of the division.

Though the Mercury Air Centers division has been profitable for the past several years, former parent Mercury Air Group has reported a long string of losing quarters. Mercury Air Group faced stiff financial penalties if some outstanding debt was not covered by the end of last year. Allied reportedly fronted Mercury $24 million to cover that debt as part of the deal for the FBO division. Mercury then paid that money back from proceeds of the deal.

Mercury’s FBO segment had been rumored to be for sale for several months before the Allied Capital announcement last October, with several suitors on the list of potential buyers. Signature Flight Support confirmed to AIN that it had expressed interested in some, but not all, of the Mercury Air Center facilities, and had conducted advanced negotiations with Mercury’s management with an eye toward a deal.

Like Signature, Mercury Air Centers has several FBOs on airports that also serve scheduled airlines, such as Atlanta Hartsfield-Jackson International; Los Angeles International; Ontario International, Calif.; and Burbank Municipal, Calif. Mercury Air Group’s remaining three divisions include MercFuel, a worldwide airline refueling concern that supplies more than 200 commercial air carriers and corporate fleet operators. There was some attractive economy of scale associated with having both the FBO and MercFuel divisions operating at the same airports.

Mercury Air Group’s other two divisions include Mercury Air Cargo, the original core business founded after World War II by veterans of the American Volunteer Group–Flying Tigers. The remaining division is the Maytag Aircraft government support services company, a contractor supplying U.S. government-owned aircraft with operations and maintenance services, such as aircraft refueling, maintenance, ground handling, terminal services and weather observation and forecasting.

Mercury Air Centers has not been static. Despite the fact that the chain has been for sale for several months, Mercury was among bidders for the leasehold at New York La Guardia Airport (LGA), a concession that Signature Flight Support and its corporate ancestors have held for decades. And at Williamsburg International Airport in Newport News, Va., Mercury Air Centers recently acquired its 20th FBO. After processing a request for proposals, the airport authority awarded Mercury a 20-year FBO lease for the former Flight International FBO, whose aircraft maintenance operation will continue as a Mercury tenant. A Mercury spokesman added that Mercury at Newport News will offer Chevron fuel exclusively, as it does at its other 19 locations. Mercury plans a new terminal, to be completed late next year.

Mercury Air Group stock (ticker symbol MAX) trades on the American Stock Exchange and was trading at $6.85 late last month, having dipped as low as $4.48 over the last 12 months, with its 52-week high listed as $8.18. Allied Capital stock (ALD) trades on the New York Stock Exchange and was valued at $26.37 as of late last month, with its 52-week high at $31.12 and its low $19.45.