FBO Market Experiences Renewed Consolidation

 - January 1, 2014, 5:40 AM
Chester County Aviation at G.O. Carlson Airport in Coatesville, Pa., joined the Ross Aviation network this year.

Activity among the service provider chains over the past few months suggests the FBO consolidation kettle is steaming again and whistling loudly. Last month, Atlantic Aviation, which previously had no Florida FBOs, made a big splash with the announcement of its $195 million acquisition of Galaxy Aviation. Atlantic added four of Galaxy’s Florida FBOs: at Orlando International, Northeast Florida Regional Airport in St. Augustine, Witham Field Airport in Stuart and Palm Beach International Airport in West Palm Beach. The chain also added Galaxy’s FBO in Colorado ski country, at Yampa Valley Airport in Hayden. That, along with the Macquarie Infrastructure subsidiary’s recent purchase of Hangar Ten Aviation Services at Kansas City Charles B. Wheeler Downtown Airport, will push the company’s network to 68 locations nationwide.

Last summer, Signature Flight Support announced plans to boost its holdings at Westchester County Airport (HPN) with acquisition of the Jet Systems (formerly Avitat) FBO, but when the matter was presented to the Westchester County Board of Legislators for approval in the fall, the proposal had been amended to include the purchase of the Million Air White Plains FBO as well. With those FBOs added to its current facility, Signature would have increased its approximately seven-acre leasehold at the New York City-area dual-use airport by 27 acres along with the associated structures, but last month, the county board failed to vote on the bid due to public concerns about tax issues, in essence forcing the BBA Aviation subsidiary to restructure its offer and resubmit it sometime next year. The decision follows Landmark Aviation’s November announcement that it had increased its presence at the airport with the purchase of independent FBO Panorama Flight Support. The Signature deal, had it been approved, would have reduced the number of FBOs operating at the New York City-area airport from five at the beginning of 2013 to just two.

At the Los Angeles-area business aviation hub Van Nuys Airport, a similar situation is playing out with the completion of Signature’s purchase of the two Maguire Aviation locations last month. And this past summer, Landmark purchased both competing service providers at Gerald R. Ford International Airport in Michigan and combined them into a single FBO.

All this consolidation is symptomatic of the heating of the FBO real-estate business. Ross Aviation last month put the wraps on a productive year, one that saw the company expand its FBO network by more than 46 percent. During the year, the company acquired six FBOs: Tradition Aviation at Jacqueline Cochran Regional Airport (KTRM) in Palm Springs, Calif.; Chester County Aviation at Chester County G. O. Carlson Airport in Coatesville, Pa. (KMQS); Louisiana Aircraft at Baton Rouge Metropolitan Airport in Baton Rouge, La.; Avion Flight Centre at Midland International Airport in Midland, Texas; and Western Edge Aviation at Sloulin Field International Airport in Williston, N.D., in a joint venture with Fargo Jet Center and Overland Aviation. As of press time the company was set to acquire another–yet to be identified–facility. With its latest purchases, Ross is the fourth largest FBO chain in the U.S. The third largest–Million Air–recently added its first Florida base with the purchase of the former Avion Jet Center at Orlando Sanford International.

Opportunity Is There

“I think the chains are being opportunists in the sense that when they see a chance to do anything, they are on it like a bee on honey,” noted Steve Dennis, chairman of FBO industry advisory firm Aviation Resource Group International (ARGI). “The economic imperative is that companies in this industry aren’t seeing much growth, and the only way they really improve their earnings is by consolidation.”

There are several reasons why the FBO market is ripe for the picking. “One is that the owner of an individual FBO has recognized that the days of high multiples of income before interest, taxes, depreciation and amortization [IBITDA] are not likely to return,” said Jeff Ross, president and CEO of Ross Aviation. “So instead of holding out for the dream, they accept the reality.” The reality in this case is the acceptance of an offer from one of the FBO chains looking to expand their footprint or increase their share of business at an airport.

Yet according to some, price is often not the sole factor leading to the sale of a successful FBO. During last year’s NBAA Schedulers and Dispatchers Conference, Signature Flight Support president Maria Sastre noted the “graying of the industry” as a factor in the consolidation trend. “I think the older generations that have owned a lot of these individual family businesses are looking to move out if they can’t find an easy way to transfer the inheritance to their family members,” she told AIN. “There’s going to be a natural evolution in the business over the next five to tenyears.”

The venerable stock market adage states “buy low, sell high,” and while the major service provider chains would certainly advocate the former, those individual FBO owners who could afford to hang tight did wait until their business fortunes began to rise again with increases in private aviation traffic. While some might have had their plans stalled by the economic downturn, their window could be opening again with recent gains in private aviation traffic.

“Everybody is looking around because the values are starting to pick back up off their horrendous lows from 2007, 2008 and 2009,” said Lou Pepper, CEO of Atlantic Aviation. “I think sellers who felt they had missed the opportunity before the downturn are now jumping back in and trying to preserve capital. I wouldn’t say it’s the frenzy that it was back when we were consolidating like crazy in 2006 and 2007, but it’s starting to heat up again and there are a lot of deals available.”

In many cases these deals are the culmination of months–if not years–of work by the service provider chains, scouting locations and building relationships. Yet, according to Landmark Aviation president Dan Bucaro, the batting average remains fairly low. “For every one transaction you get, you’re talking to eight –or ten different possibilities, so it’s still hard,” he said, noting his company had been working on the Panorama Flight Service deal for years before its culmination in November.

Denver-based Ross Aviation cites such relationships as part of its success over the past year, according to Jeff Ross.. “What we have done is our absolute best, as have many of our fine competitors, to keep in touch with those people,” he told AIN. “We’re looking for those FBOs that are big enough to be of economic consequence and we try to be friends with them, and hope that when their time is right, they give us a call.”

“Now that the economy is recovering a little bit, those people who were looking at perhaps exiting the business a few years ago are now seeing some reasonable numbers, so they have a better shot at exiting their business,” said John Enticknap, president of FBO industry consultancy Aviation Business Strategies Group (ABSG). He believes that the maneuvers seen at major business aviation hubs such as Westchester County Airport, Van Nuys and Teterboro will foster competition among healthy businesses rather than price-war squabbles among weak players struggling to hangon. “In some places [consolidation] just makes sense because the field doesn’t justify the number of FBOs for the investment level that is required on those fields,” said Landmark’s Bucaro, who noted the strategy is not new for the industry. “If it makes sense we can get it done and I think it’s good for our business, for the airport and for the community if it’s done in the right manner; but it’s not for every place, that’s for sure.”

Some deals are strategic, such as Atlantic’s Galaxy Aviation purchase, which gives it several bases in a market it was eager to enter. Others may make sense on a local, more tactical level, such as the Panorama acquisition by Landmark, which increases its hangar and ramp space at busy HPN while strengthening the company’s charter and MRO businesses.

The current economic climate is also helping to fuel the increase in activity, according to Ross. “Another thing that has been helpful this year not just for us but for everybody is the continuing availability of low interest rates. That’s been helpful because the type of investment a fixed-base operation represents from just a pure financial standpoint is a reliable recurring generator of free cash flow, so if you have such an investment, then you can attract inexpensive debt.”

There are approximately 3,700 FBOs in the U.S., with about 10 percent of them under the control of service provider chains. One thing is certain: if current trends persist, that percentage will rise as the consolidation pot continues to boil.