Is private capital warming up to private aviation?

Happy New Year and welcome back to cyber-land. We hope you are keeping safe and had a good break – or as good as possible, considering the pandemic is worsening in many parts of the world and travel restrictions are on the up. That means many of us ended up staying put during what’s traditionally a very mobile time of year, trading a trip to the airport for a walk in the park.

That’s certainly what the numbers seem to indicate. When 2020 started, trade body Airports Council International predicted yearly global traffic would rise to about 9.4 billion, a material increase on the 9.1 billion passengers recorded in 2019. By the time covid took its toll, 2020 traffic was closer to 3.3 billion – a 64 percent decrease on the ACI’s original forecasts.

Given the context, you might be surprised to find anyone with appetite for deals in the aviation sector. And yet two transactions show appetite is indeed there. The first deal we’re referring to was F2i’s October acquisition of a majority stake in Sardinia’s Olbia Costa Smeralda Airport. The second, still ongoing, is Blackstone’s $4.3 billion bid for Signature Aviation, which runs the world’s largest fixed-base operator network – a company Global Infrastructure Partners also bid for, although its initial offer was rejected.

The link between the two? Private aviation, or as it’s known in industry parlance, business and general aviation.

Olbia Airport, F2i pointed out, is one of Europe’s main hubs for general aviation, with Sardinia’s status as an “exclusive tourist destination” boding well for its recovery. Signature Aviation is the top service provider for B&GA customers – everything from full-service flight support to ground handling to managing hangars and terminals. Of the two, Olbia Airport is the more traditional infrastructure asset. Signature, with its services bent, straddles the asset-class divide, and, tellingly, is being targeted by a pairing of Blackstone’s open-ended infrastructure and long-life private equity funds.

While private aviation took a beating from covid, it is recovering much quicker. According to data provider FlightAware, at the end of last year, business flights – which it classes as all non-commercial or cargo flights – had been operating at between 85 percent and 90 percent of their 2019 volume since July 2020. In a late September earnings call, Macquarie Infrastructure Corporation – long-time owner of Signature competitor Atlantic Aviation – painted a similar picture, noting that US “general aviation flight activity was stable throughout the quarter, down by approximately 14 percent industrywide versus the prior comparable period”.

Offer documents show Blackstone started bidding for Signature last February, so we’re not suggesting its interest in the company – or GIP’s – is a direct reaction to the pandemic (both declined to comment). There’s been plenty of interest in infra-adjacent assets, like aircraft leasing, and sources that have looked at aviation services companies have found much to like – from their infra-like performance to their strong market position, with limited competition. In our never-ending low-interest-rate environment, that alone would probably do.

However, that doesn’t mean assets linked to private aviation shouldn’t merit a closer look. After all, 2020 put an end to decades of virtually uninterrupted passenger growth. It also forcefully showed investors that airports are by far the most affected infrastructure assets in a global pandemic.

The idea that airports or aviation are done is for the birds. Still, the ACI is predicting domestic and international travel will only recover to pre-covid levels in 2023 and 2024, respectively. More ominously, the trade body says “global traffic may take up to two decades to return to previously projected levels”, with the possibility that it never does. That is likely to have an impact on investors’ perceptions of the sector.

Amidst all the doom and gloom, private aviation is emerging as a relative bright spot, less impacted and able to recover quicker in a global pandemic.

Private capital meets private aviation? It might be the start of a beautiful friendship.

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Selected investors only will be able to tune in to our behind-the-scenes insight on 2021 next week, including a preview of the annual Perspectives survey, the three main stories we’re looking at and what we’re hearing on digital bubbles and concrete ESG developments. It’s a live, off-the-record, hour-long briefing on the Infrastructure Investor Global Passport (find out more about that here). Investors should register their interest for this free and private event by emailing Katherine Watson at katherine.w@peimedia.com