Even a cold economy has some hot opportunities
The business aviation downturn will last at least another year or two but there is still plenty of room for good deal-making, according to financial advisors First Equity. Director of investment banking Brett Pogany told NBAA Convention News that new aircraft sales are being stifled by “negative factors” such as supply pressure from a strong pre-owned market. He said that this has led manufacturers here at the Orlando show this week to focus on repackaging their existing products to “freshen up” their appeal in the marketplace, rather than investing in new models.
Commenting on the latest market forecasts from Honeywell, Rolls-Royce and the Teal Group, First Equity associate Matthew Mejia said that the medium- to long-term optimism for a recovery in demand is essentially a hedge against real uncertainty over where the U.S. and global economy is going. “There really is a great deal of uncertainty out there among our clients,” he said.
Mergers and acquisitions are bread-and-butter business for First Equity, and Pogany said there is not much activity on this front at the moment in business aviation. Companies are looking to “hunker down” until future trading conditions become clearer. “We will often advise clients that now is not the right time to proceed with an acquisition or sale, and that they should wait a while,” he explained. Even though these transactions generate substantial fees for firms like First Equity, Pogany said, “ We don’t just flash and burn on mergers, because we have a reputation to keep and you are only as good as your last merger.”
That said, in Mejia’s view some bizav firms are still seeking to divest non-core businesses, and there are some good buys to be had in light of depressed stock prices. Generally, though, the immediate expectations that the September 11 terrorist attacks would spur a wave of fire sales among corporations facing revenue crises has not materialized. “Some companies have been forced into restructuring or sales, but whenever possible they have decided to wait,” said Pogany. “One factor is that equity values are much lower, so there simply isn’t enough cash for acquisitions.”
The wider capital market, however, is still flushed with greenbacks and since the stock market is now a questionable investment conduit, some investors are willing to look at aviation projects that make a sound business case. Westport, Conn.-based First Equity suggested that the new Eclipse six-seat jet could be one such program. “This is a really innovative project that could change the industry, despite its detractors, and we think it will bring people into the market,” said Pogany. He added that the investment community’s confidence in Eclipse was boosted because of founder Vern Raburn’s “realistic” estimates of development costs.
One thing that sets First Equity apart from other financiers is that it actually has some of its own business aviation holdings, including Memphis, Tenn.-based Aerospace Products International, a supply chain management and parts distribution specialist. Pogany and his colleagues are based at the API exhibit here at the NBAA show (Booth No. 2815).