FBOs across the country are seeing record profits from fuel sales thanks to the surge in business and general aviation traffic since the start of the pandemic.
Market experts foresee growth continuing in this market for the coming years as businesses are becoming more accustomed to the travel compared to the constraints of commercial aviation.
A recent report from William Blair notes a 20% increase in FBO operations in the past two years, making these entities more attractive to investors. Infrastructure and real estate opportunities are attractive to potential investors as more infrastructure funds enter the aviation market. Signature Flight Support and Atlantic Aviation were already purchased by infrastructure funds, but there are more opportunities for smaller chains or single location operations.
William Blair Director Josh Ollek says mid-tier FBO chains have the best opportunity for consolidation in the market.
“Smaller chains or the single location FBOs trying to expand don’t have the same synergies as the larger players have,” he said.
Record profits has opened a window for FBO to consider selling. Founder or family-owned locations could see this as an opportunity to get out of the business while the market is hot knowing the boom may only last a couple of years.
“That’s the group of folks that I’d say now is the time to sell or go retire,” Ollek said. “Who knows what the market could look like in five years and all the work you’ve done to build this enterprise may not be worth as much in the future as it is right now.”
Location is the biggest factor for investors looking to purchase small FBOs. They will look at what’s driving growth in the local market along with the real estate opportunities at the FBO location. Ollek says greenfield opportunities at an airport tend to be a better investment than FBOs, so those with the right opportunities and growth will be the most attractive.
Ollek cites the Mountain West region as a potential hot market due to pandemic migration and continued business growth in the region.
“Real estate investors still need to get comfortable with the volatility of fuel sales,” Ollek said. “The locations that are really attractive are the ones with reoccurring demand, leisure activities or major corporations located in the area.
FBOs could also become solar power hubs. Some locations could offer another opportunity for investors to install panels on an FBO and use it as another revenue source.
“We’ve seen other services that FBOs have layered on like security cameras and charging the clients for access to the video feed,” Ollek said.
FBO owners looking to see should prepare themselves before interacting with a potential investor. Ollek said they should get their books in order, do some basic analysis of the business and put together key performance indicators an investor would want to see. They should also ensure a lease life of the facility of at least 25 years.
“Once you get below 10 years, you lose quite a bit of value,” Ollek said. “There are investments you can make in order to extend that lease life that are a big value driver and something you should do before going to market.”
