An increased demand within the private aviation and commercial aviation market has professionals predicting growth for the back half of 2023 and into 2024. This is what it means for M&A.

Coming out of the pandemic, there was a quick and immediate flood into private travel, representing 20 to 30 percent growth above pre-pandemic rates, according to Josh Ollek a managing director for William Blair which published its 2023 Q1 Aviation Services Industry Update. On the other hand, Ollek notes that the commercial segment has taken significantly longer to rebound.

The report highlights the slow rebound in the commercial sector. Looking at the lockdown time period of 2020 (Q1-3), deliveries for Boeing and Airbus plummeted to a combined about 150 deliveries in Q1, 100 in Q2, and 175 in Q3. In comparison to the final two quarters of 2022, the firms saw combined deliveries of 250 in Q3 and 375 in Q4.

As a result of severe backlogs in business jet and commercial aircraft orders and deliveries, William Blair’s reports predict growth for aviation firms as a result of a return to normal and increased demand for flights. For example, the report predicts revenue growth of 6.9 percent and 18.9 percent for 2023 and 2024, respectively

“That demand increasing obviously flows to the bottom line of any of these businesses,” says Ollek. “In the aviation services sector, for example, if flight activity is picking up that means folks that are operating those aircraft are generating more profit. The demand for the services around those aircraft increases, so that could be hanger storage, it could be fuel or it could be maintenance and repair services. It really ripples its way through the entire ecosystem. So when you’re seeing flight activity increase, that translates into growth across the entirety of the sector.”

Aviation fixed base operators, a commercial operation that provides aviation services to both major airports as well as smaller airports and hangars, are a valuable play for strategic investors, according to Ollek.

He explains that FBOs represent a very simple business model. The assets are real estate driven. There are only so many airports in the U.S. and it is unlikely that major new ones will be created. As a result, there is something of a monopoly represented.

“The demand for hangars continues to increase as more aircraft are operating and because of that, you’re able to continue to lift prices on that hangar capacity. And even when flight activity dips, those planes still need to be stored somewhere. I think that sector continues to remain strong,” says Ollek. “There’s still a good consolidation story there. Despite the fact that flight activity is down, it’s still 20 percent ahead of where it was pre-pandemic.”

Ollek makes note that FBOs represent a very fragmented industry that has benefited from consolidation efforts from firms like Atlantic and Signature for years. “But there’s still plenty of that left to go. And there’s a lot of synergies that you can wring out as you as you add individual locations to the network,” says Ollek.

Cole Lipsky