Thirty years ago, the private aviation market almost exclusively consisted of the people and corporations in many industries that owned private jets.
Not anymore. Today, 40% of the world’s 446,000 private jets are in the hands of private aviation companies – like NetJets, Vista and Flexjet – that offer customers more flexible choices of aircraft, greater security, and greater privacy. When even Taylor Swift is selling her private jets, you know something has changed.
These changes are creating new and substantial investment opportunities for a growing and diversified group of investors. They increasingly view the private aviation industry as a place for stable investments like those in commercial aviation services, airports, and airlines.
The influx of new investors, in turn, is creating new opportunities for owners of existing private aviation businesses by providing them with more access to capital and opportunities to realize advantageous exits.
The $37 billion private aviation industry has been steadily growing since the 1990s. The pandemic supercharged a long-term growth trend, with a 40% increase in flight hours between 2019 and 2023.
While private jet ownership has always offered more security, flexibility, comfort and amenities than commercial travel, alternative private aviation companies offer even more advantages. They provide the “right-sized” lift for each flight based on the distance traveled and number of passengers. The alternatives now include:
- Fractional ownership, where a buyer purchases anywhere from 1/16th to one half of an aircraft.
- Program membership, where the passenger purchases 50 or more hours per year of guaranteed access to a fleet of private aircraft anytime and anywhere.
- Jet cards, where the passenger purchases 25 or 50 flight hours on an operator’s fleet.
- On demand charters, where the passenger receives a bid for each separate trip.
- Aggregation services that allow passengers to buy tickets on shared charters or to access empty seats on private flights.
In addition to the convenience, flying with alternative services limits the ability of others to track your movements. This can be crucial to executives, bankers, and lawyers engaged in confidential deals who want to reduce public scrutiny, as well as notable figures looking to keep their private lives private.
Key Trends
Several tailwinds are propelling private aviation forward and attracting an influx of capital.
All of the alternative aviation models have the goal of increasing utilization per aircraft – picture Uber for private jets. The average personal private jet flies fewer than 200 hours per year, even though the aircraft is capable of flying over 1,200 hours. Increasing utilization by allowing more than one flyer to use the same aircraft simply makes flying private more economical.
Market growth and the transition towards fleet operators has also created an opportunity for operators to gain scale, greater margins, higher cash flows, and more mature capital structures.
Growth has also trickled down the private aviation supply chain. Providers of aviation services, such as maintenance organizations and fixed base operators (FBOs), have benefitted from more predictable demand. Larger operators can sign longer-term, higher dollar contracts. This benefits their suppliers and further strengthens the entire private aviation market.
All of these factors have increased interest from institutional capital. Fifteen years ago, the private aviation industry was dominated by entrepreneurs and family- or management-owned assets. Ten years ago, venture capital and growth equity investors began investing in the sector. Now the investor universe is expanding even further:
- Infrastructure funds are emerging as the core investor group in FBOs – changing the industry by creating higher return requirements and valuations.
- Experienced aerospace-focused private equity funds are leveraging their expertise in commercial aviation services via investments in private aviation-focused maintenance repair and overhaul (MRO) services.
- Travel, tourism, and hospitality investors are funding branded operators and FBOs with structured equity or debt investments.
- Family offices with long-term investment horizons are evaluating a wide range of opportunities including asset-light operators and tax-efficient investments in aircraft.
In total, over $20 billion of institutional-backed capital has been deployed into private aviation operators and supply chains since 2019 in the form of both equity and debt, and there is significant space for future investments across a range of business models and transaction structures.
Opportunities for Investors
Institutional investors have many entry points into the space depending on what they want from an investment. Asset light operators tend to have lower margins but are lower risk investments. Operators that own their fleets offer opportunities to deploy capital throughout the ownership period to fund growth. MRO operations display similar dynamics to the well-capitalized and familiar commercial aerospace sector, but often come with labor issues and dependence on OEMs. Integrated providers offer multiple avenues for growth but may be more difficult to value.
Private equity interest in this industry is being driven by a few common themes:
- The private aviation sector has displayed stable, long-term growth, paired with the emergence of professionalized and scaled businesses.
- Private aviation is tied to GDP and even more closely tied to wealth creation and high-net-worth individual population growth.
- Aviation is and will always be a highly regulated end market, which creates barriers to entry for new competitors and high switching costs for customers. This assures recurring revenues.
- Aviation, and private aviation in particular, is generally a capital intense sector and will require investment to fund growth like operators’ fleet expansion, MROs increasing capacity, FBOs improving networks, etc.
- The sector remains highly fragmented with considerable consolidation opportunities remaining.
- New business models create a dynamic marketplace with a wide range of alternatives for investment strategies in the sector.
Implications for Private Aviation Companies and Existing Shareholders
Interest from institutional investors will offer expanded opportunities for existing businesses in private aviation to gain access to capital and spur faster growth.
Founders can partner with experienced investors to professionalize their businesses and create war chests to realize aspirational growth strategies like geographical expansion or M&A. Partnering with institutional investors also allows companies to take risks for future growth and create succession or exit plans.
While demand from institutional investors has been growing and remains robust, we anticipate a handful of changing dynamics:
- Businesses will increasingly use public debt and equity to scale, likely utilizing instruments often seen in the capital structures of players in the commercial aviation space (e.g., EETC and ABS debt structures, tax-efficient municipal financing, high-yield notes, etc.).
- Infrastructure investors are likely to expand their scope beyond FBOs into other subsectors of aviation. These offer consistent and visible revenues and profitability, especially with the limited availability of traditional infrastructure assets.
- There will be more creative transaction structures including use of more diverse products such as preferred equity and convertible debt to protect investors’ downside and share upside when venturing into new sectors.
- Earlier stage investors may have to move their hunting ground further upstream to areas like electric vertical takeoff and landing (EVTOL) aircraft, aviation software, sustainable fuel, and other next-generation technologies.
As with any industry, there will be winners and losers – but the secular growth trends across private aviation and the excitement from the broader investment universe should create an environment of highly profitable exits for entrepreneurs and company founders. It is they, of course, who took risks years ago to create today’s private aviation landscape which is set for success for years to come.
Katya Brozyna is a leader of Jefferies' Aviation & Aerospace Investment Banking practice. With over ten years of experience, Katya specializes in capital raising and advisory for clients across business aviation and commercial aerospace end markets. She has completed over 75 M&A, debt and equity transactions for operators, FBOs, MROs, manufacturers, leasing companies and other sectors in the aviation landscape. Katya received a B.S. in Finance and Accounting from the McIntire School of Commerce at the University of Virginia. She can be reached at [email protected]