David Jasmund

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Business aviation is doing quite well, unlike the air transport sector which struggles with high fuel prices along with many other industries. These good times are driving a wave of business aviation merger and acquisition (M&A) activity that’s producing prices not seen since the dot-com era.

Why is Business Aviation Different Among Civil Aviation Firms?

  1. Commercial airline travel remains unpleasant, especially for business flyers. Time is money. Corporations are willing to pay sizable sums to avoid the headaches of scheduled airline travel that is increasingly plagued by lost luggage, long lines and even longer flight delays. As airlines cut scheduled flights to increase load levels in response to high fuel prices, they will drive even more customers to business jet alternatives. Meanwhile, very light jets are making jet aircraft affordable to new customer segments.
  2. Four dollar per gallon gasoline is not a bad thing if you are from Brazil, Russia, the Middle East or other oil-rich nations. Indeed, emerging wealth from rapidly developing nations such as India and China is creating robust private client markets outside the U. S. and Europe. According to Bombardier Aerospace’s 2008 Business Aircraft Market Forecast, growth in overseas markets will buffet any softening in domestic corporate demand. Watch for the share of fleet accounted by U.S. markets to sink from 69% to 54% by 2017.

The current Bombardier Forecast asserts manufacturers will deliver 13,200 business aircraft worth more than $300 billion over the next 10 years – a significant increase compared to last year’s forecast of 9,950 deliveries within the same decade-long timeframe. At this rate the worldwide business jet fleet would nearly double in size to 24,800 aircraft by 2017. These projections represent a considerable ramp-up in annual production compared to record deliveries of 1,138 business jets in 2007 and 886 the previous year, according to the General Aviation Manufacturers Association.

A Review of Business Aviation M&A Transaction Activity & Prices

Over the last decade, pure-play business aviation companies typically accounted for eight to twelve transactions per year. Deal activity has risen steadily since 2005 following 2002’s activity trough in the aftermath of 9/11 and a pricing trough in 2003 due to the combined geo-political effects of SARS and the initiation of the Gulf War.

In 2007 pure-play business aviation M&A reached a record level of deal activity and, so far this year, owners in the business aviation sector received a median price of 2.4 x revenues when selling their businesses.

Drivers of Deal Activity & Pricing over the Next 12-24 Months

Because the business jet sector is far more fragmented than air transport and regional jet markets (where Boeing & Airbus and Embraer & Bombardier dominate their respective OEM markets), consolidation of business aviation has years of activity ahead.

While median prices are currently high, future prices will move in tandem with changes to market forecasts produced by GAMA and leading industry participants. We believe prices are at, or nearly at, a peak given the high percentage of transactions made by strategic buyers acquiring from private equity firms, organizations that have core competencies in identifying opportune times to buy low and sell high. The Carlyle Group’s August 2007 $1.9 billion sale of Standard Aero and Landmark Aviation to Dubai Aerospace Enterprises and Allied Capital Corporation’s $428 million sale of Mercury Air Centers to Macquarie Infrastructure Company are two excellent examples of this phenomenon. We also believe there will be less deal activity compared to 2007 as private equity firms affected by tight credit markets will be less active buyers (but not less active sellers).

What’s Next?

Regardless of deal activity and market prices at any particular time, strategic and financial buyers will continue to pay above-market prices for companies that provide access to key customer segments and locations or fill gaps in critical or important capabilities. It’s just a matter of what “market prices” will be.

In the next issue of the PCE Aerospace & Defense Newsletter, we will provide informed opinions about the areas we believe should be especially attractive to potential acquirers over the next 12 to 24 months.

If you have comments or questions about this article, or would like more information on this subject matter, please contact us.

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David Jasmund


David Jasmund

Investment Banking | ESOP

Orlando Office

407-621-2111 (direct)


407-621-2111 (direct)

407-621-2199 (fax)