September 25, 2007 8:08 am
In the highly-fragmented business of providing service bases for private jets, BBA Aviation is seeking opportunities for further consolidation to strengthen its position as the world leader.
With 88 fixed-base operations (FBOs) around the world, of which 53 are in the US, the UK group has already established a clear lead for the business, which operates under the Signature brand, ahead of its closest rivals Atlantic Aviation and Landmark Aviation with 68 and 33 FBOs respectively.
It is facing a strong competitor, however, in Dallas-based Atlantic Aviation that is owned by Macquarie Infrastructure Company and which is itself proving an aggressive buyer of new assets.
This year Macquarie bought Mercury Air Centers, the operator of 24 FBOs at 22 airports across the US, and with the merger of this business and Atlantic the combined group has a total of 68 locations, the biggest chain in the US. It had previously integrated the Trajen FBO network in 2006.
BBA claims that it remains the leader in the US measured by aircraft movements and fuel volumes, though, and it has a greater worldwide presence given its operations in Europe with 21 bases – most importantly at London Luton and Paris Le Bourget airports, as well as a number of smaller joint ventures in Hong Kong and Brazil.
“There are lots of opportunities in consolidation – we have a pipeline of deals,” says Simon Pryce, BBA chief executive, a former accountant and investment banker who joined the group in July from GKN, the UK engineering group.
In July BBA completed the £37.5m acquisition of Executive Beechcraft, which operates four full service FBOs in Kansas and Missouri, all with long lease terms. In the past couple of months it has also acquired two more bases: Marathon Flight Services at Kissimmee, Florida, and Carolina Air Centre at Hilton Head, South Carolina, for £11.1m.
In total the network of Signature bases covers 41 of the top 50 metropolitan areas in the US and 17 of the top 30 US hub airports.
With the scale of the US operations BBA is able to run the bases as a network under a single brand with all the advantages of controlled pricing, customer management and service standards.
While BBA expects to remain highly active on the acquisition trail, Mr Pryce warns that potential targets are becoming expensive, however. In recent deals Macquarie has “been paying pretty punchy prices”, he says.
“We cannot make our numbers work at these prices. It will be interesting to see what happens with the pricing of assets, now that the credit markets are being a bit more rational.”
The next big step in the restructuring of the FBO sector in the US is likely to concern the ownership of the Landmark chain, where the entire airport services division of Landmark Aviation is officially for sale including, chiefly, the 33 FBOs.
The sale of the FBOs is being handled by Merrill Lynch, the US investment bank, and was a condition for the much bigger transaction completed in August in which the two US groups Landmark Aviation and Standard Aero were bought by Dubai Aerospace Enterprise for $1.9bn from the Carlyle Group as part of DAE’s ambitious expansion into aircraft and engine maintenance, repair and overhaul.
For BBA the potential attraction of any deal involving Landmark is diminished by the fact that the two groups are already present at many of the same airports.
Mr Pryce is optimistic for the outlook of the FBO sector and the general health of business aviation. The bases provide a range of fuelling, passenger and aircraft handling, and hangarage services for corporate jet users.
BBA’s Signature business had a turnover of around £360m and a workforce of 1,700 last year. In the first half of 2007 turnover rose by 11 per cent (at constant exchange rates) to £185.5m. The biggest impetus for growth is from the fractional operators of jets, says Mr Pryce, and the group’s fuel volumes from this sector rose by more than 20 per cent in the first half of the year.
Business jets flown by the fractional ownership companies account for about 10 per cent of the aircraft fleet but 25 per cent of the fuel volumes, as the jets are used more intensively at close to 1,000 hours a year. BBA is already present at 24 of the 50 most popular airports for the fractional operators.
In Europe Signature has also recently won a multi-year agreement from NetJets Europe, the fractional group and by far the biggest operator of business jets in Europe, which has named it as its preferred handler at a number of strategic locations.
The Signature FBOs are the biggest business area within BBA, which has itself been radically restructured in the past year with the aim of focusing its efforts much more closely on aviation and aerospace.
In addition to Signature, its flight support division, with total first-half sales of £282m, includes the ASIG commercial aviation services business comprising aircraft refuelling, ground handling and specialist services such as de-icing.
The separate aftermarket services and systems division, with sales of £204m in the first half, includes engine and components repair and overhaul and the APPH landing gear manufacturing business. Overall around 65 per cent of group turnover of £950m last year was derived from business aviation, 30 per cent from commercial airlines and five per cent from military customers.
Most important, the demerger of Fiberweb, the non-woven materials business, in November last year removed the last of the old legacy businesses from the old BBA. In addition since the demerger BBA Aviation has disposed of two other related but non-core businesses, Oxford Aviation Training pilot school, which generated proceeds of £32m, and more recently Oxford airport, which was sold for £40m.
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