Over the past year, more than 250 FBOs changed hands—a record for the industry. That number was boosted by two of the biggest-ever FBO transactions: the sales of Signature Aviation, parent company of Signature Flight Support, and Atlantic Aviation. Signature and Atlantic are the two largest FBO chains worldwide.
In June, Signature Aviation was sold to a consortium of private equity firms consisting of Blackstone, Global Infrastructure Partners (GIP), and Cascade Investments following a successful bid of $4.7 billion. Signature had spent the past several years divesting itself of all of its divisions outside of its core business and general aviation ground handling operation, transforming itself into a pure-play flight service provider.
But the deal didn't happen without some twists and turns. In January, Global Infrastructure Partners issued an offer of $4.6 billion to purchase Signature, which operates the world’s largest FBO network with more than 200 locations globally. That includes 168 wholly-owned, 18 partially-owned, 11 independently-owned Signature Select affiliates, and 21 ground handling locations.
GIP's offer prompted responses from Cascade, which handles the bulk of Microsoft co-founder Bill Gates’s personal fortune and owned a nearly 20 percent stake in Signature, and private equity group Blackstone Infrastructure Advisors and Blackstone Core Equity Management Associates. The latter two investor groups had previously joined together and issued their own $4 billion offer for the FBO chain. In the end, all three companies joined forces to buy Signature.
Meanwhile, U.S.-based private equity company KKR announced in June that it would acquire Atlantic Aviation, and its 69 U.S. FBO locations, from Macquarie Infrastructure Corp. (MIC) for nearly $4.475 billion, including approximately $1 billion in assumed debt. MIC purchased Atlantic Aviation and its 12 FBOs in 2004 for a reported $238 million. KKR closed on the Atlantic Aviation deal last month.
Macquarie had initially begun fielding purchase inquiries regarding Atlantic in 2019, but that process was shelved amid the global pandemic. According to an industry expert, MIC benefitted financially from this delay thanks to the high interest surrounding the Signature sale. “KKR is bringing a tremendous amount of capital to our company to our business,” Atlantic CEO Lou Pepper told AIN. “We’re going have the ability to expand, we’re going to do it strategically as we’ve always done in the past.”
These two recent transactions show the growing influence of private equity money in the FBO arena. Including the two largest chains, there is also Ross Aviation (backed by KSL Capital Partners), Lynx (Sterling Group), and Modern Aviation (Tiger Infrastructure Partners).
This has helped accelerate an industry consolidation trend that has been ongoing for the past two decades, according to Douglas Wilson, president and senior partner of consultancy firm FBO Partners, and a student of history in the sector. “Those are all owned by private equity and probably represent at least one FBO at every market in the top 200 or 250 [in the U.S.].”
Added into the mix are the corporately or privately-owned medium-sized chains such as Jet Aviation, Million Air, Sheltair, Avflight, and Tac Air, as well as smaller regional chains such as Cutter Aviation, Carver Aviation, FlightLevel Aviation, and Wilson Air.
The Rise of the Modern FBO
Wilson explained how the concept of FBOs became firmly entrenched just after World War II and how that is affecting today’s U.S. FBO market. “Airports were being turned back over to cities and municipalities [by the military], and the burgeoning FBO business and aircraft services were just starting out,” he told AIN. “That’s where you first saw full-service FBOs and a lot of the first-generation owners were getting into the business, and that also coincided with the baby boom, where those second-generation owners were born.”
Those post-war FBO owners were given long leases generally lasting 30 to 35 years, followed in many cases with a renewal of equal length. For an FBO that began in 1946 with a pair of 30-year leases, the second lease would have ended in 2006. For a 35-year lease period, that would have expired in 2016.
During the 2006 to 2016 span, some 400 U.S. FBOs changed hands, according to Wilson. While some FBOs are continuing to operate into their third and even fourth generation of family ownership, there were many who decided for any of a number of reasons that they wished to cash out as they reached retirement age.
In most cases, they decided to sell their business to one of the chains that constantly monitor prospective acquisition targets as their leases wind down and maintain lines of communication with their owners. In fact, Ross Aviation in August purchased the family-owned Stuart Jet Center in Florida as its 19th FBO. Ross CEO Brian Corbett said the deal was the culmination of discussions that had been ongoing between the two sides for more than a decade.
Other factors that have fueled consolidation are the adoption of minimum standards that are applied to screen potential FBO respondents to airport requests for proposals (RFP). “That sort of changed the industry,” said Wilson. “It starts to move away less-sophisticated players.”
Another hurdle is the imposition of capital improvements that most airports are now including in their awarded leases, improvements to property that is still under airport ownership and can revert back to airport control at lease termination. At first or even second-tier airports, such commitments can total millions of dollars over the course of the lease, and for an independent operator that can present problems in terms of obtaining capital.
“The pure commercial banking industry doesn’t really understand FBOs operating from leased land,” explained Wilson. “There’s zero residual value, which often scares banks and so that tends to point more towards private equity.”
With the current surge in private aviation as a result of the Covid pandemic, the pendulum has swung firmly in favor of the sellers, but it is not a case of a rising tide lifting all boats as far as FBOs are concerned. While the top 250 FBO markets may have seen some restacking in rank as traffic to leisure destinations has in some cases outstripped the traditional business aviation gateways, Wilson pointed out that the downmarket third or fourth-tier locations have not seen the same levels of growth or interest.
There still are still some independent, quality FBOs among the top-tier airports, but their number declines every year. “We do get purchase inquiries as you might expect, we have for many years,” said Ken Forester, CEO of family-owned Meridian, which operates the only independent FBO left at New Jersey business aviation hub Teterboro Airport. It also recently opened a facility in the San Francisco area. “Our commitment continues to be that we think there’s a lot of value to a family-run operation. We think we can be very competitive with the big chains.”
For those possibly available, upper-tier airport service providers, the asking price has been steadily increasing following the recovery from the doldrums of the Great Recession. “While there’s many ways to value businesses, typically FBOs tend to trade as a multiple of EBIDTA [earnings before interest, taxes, depreciation, and amortization],” said Wilson. “It’s not the multiples that changed, the EBITDA growth has changed and the projection of growth on a month-to-month basis for fuel sales, hangar, etc., continues to grow.”
He said that even owners considering an exit from their business may be waiting out the market. “Owners themselves may be unwilling to sell because they know they are on the crest, the wave is starting and I don’t think we are going to see EBITDA top out for a little while in our industry.”
As far as the current situation, with airframer backlogs rising and preowned sales reaching record levels, Wilson believes the industry could be on the cusp of a new historic era. “Possibly as a result of Covid tipping the scale a bit, I think we might be beginning to see the third wave of business and general aviation,” he said.
“I count the first wave as 1946 to 1949, if you look at GAMA stats, the most aircraft ever delivered. I count the second wave between around 1977 and 1981, the second-most aircraft that were ever produced.” That period includes 1981, when turbine-powered aircraft for the first time outstripped piston aircraft in business aviation deliveries.
Wilson noted the increase in private equity infrastructure investment activity in the industry, combined with the emerging technologies of electrification, eVTOL, and hydrogen power. “We’re on a wave right now where I think we are going to see so much investment in our industry, and combined with the effect of Covid, where individuals are far more concerned about their health and safety, they now look at private aviation as a truly viable alternative where they may have never before,” explained Wilson.
“I think that is fueling a lot of the growth in aircraft sales and transactions, and I think a lot of people are getting into the beginning of the third wave,” he concluded.