Goldman Sachs, the Wall Street investment firm, has a thing for business aviation, according to Sanjeev Mehra, the firm’s managing director. Raytheon Aircraft, purchased on March 26 this year, was its most recent acquisition. Investment funds controlled by the Goldman Sachs affiliate Goldman Sachs Capital Partners and Canada’s Onex Partners bought the Wichita OEM for $3.3 billion in debt and equity and renamed it Hawker Beechcraft. The purchase made Goldman one of the major players in today’s business aviation market.
Business aviation’s “above average” rate of growth is what makes the industry so attractive, said Mehra. Goldman is making a renewed push into bizav after entering the sector in the 1990s, when IT invested in fractional-service-provider NetJets. Today Goldman and Goldman-controlled funds have been or are major investors in Hawker Beechcraft and NetJets as well as Adam Aircraft, aircraft composites maker Hexcel and avionics test equipment manufacturer Aeroflex. Mehra is chairman of Hawker Beechcraft and serves on Adam Aircraft’s board of directors.
Combined, Goldman has about 5 percent of its total $25 billion private equity portfolio invested in business aviation and related companies, according to Mehra. He said Goldman’s total investment in the sector is “approximately $1 billion” and that Goldman’s growing presence is not part of a long-range strategic plan but rather the natural byproduct of thoughtful investing. “We don’t allocate a specific percentage of our portfolio to any one sector,” Mehra said. “But as we learn more about companies in a sector, we become more sophisticated investing in that sector.”
He said he views fractional ownership programs and new technologies, such as all-composite aircraft, as keys to expanding the business aviation market. “With NetJets we saw how you could expand the market by reducing the cost of a plane through fractionalizing it,” said Mehra. “With composites, you can further reduce the cost of private travel by making aircraft more efficient. As commercial air travel becomes more challenging and technology improves, more people will have access to private travel on a lower cost basis, and that leads to a higher rate of growth.”
While Hawker Beechcraft’s involvement with composites dates back to the Beech Starship program in the 1970s and 1980s, Mehra said Goldman’s participation in acquiring the company was more opportunistic. “Hawker Beechcraft was a different story,” he said. “Raytheon had classified the company as a non-core asset” and was looking for a buyer. “There are only five established general aviation companies in the world,” he said. “With entry barriers in the sector being substantial, we saw Raytheon Aircraft as a company with great brands in Hawker and Beechcraft; new products about to be launched, like the Hawker 4000, 900 and 750; and market-share leading aircraft, such as the Hawker 850 and the King Air turboprop series.”
Mehra acknowledged there are risks, but said that, so far, they have been worth the rewards. “It is a cyclical business, but it does continue to grow. The sector’s last peak was its highest and its last trough was less severe than the previous one. Overall, our rate of return is at the higher end of our expectations. We have been very satisfied with what we have achieved.”