The charter industry has seen a flurry of acquisitions and mergers in the past year, and by all accounts the activity will continue. One of the most surprising, perhaps, was the acquisition of PrivatAir by UK-based Gama Holdings, a company relatively unknown in the U.S. The new business was named Gama Aviation and is based in Stratford, Conn., with additional locations in West Palm Beach, Fla., and Norwich, N.Y.

Although Gama Holdings is focused on expanding its global presence, the company had a relatively humble beginning as a one-airplane air-taxi service, based at Fairoaks Airfield, a few miles from Farnborough Airport. The company opened in 1983 with one Beech Baron and didn’t add a second aircraft–a King Air–until a year later.

“The business model was very much an owner-operator type model,” Gama CEO and founder Marwan Khalek told AIN, explaining that the company’s first airplanes were financed. “The value of airplanes is quite high compared with the profit margins you make in this business, so acquiring the next airplane was quite a challenge.”

Over the next few years, the company grew and slowly added Learjet 35s to its fleet. “We spent the first 15 years of our existence slugging away, but we built a good business and a good reputation with our customers,” Khalek said. “We also had a good core group of people, and I suppose the foundations were made.”

By 2000, Gama owned six aircraft, employed 35 people and was worth approximately $12 million. Khalek decided the time was right to move the business in a new direction and added aircraft management and maintenance services. The company also upgraded its fleet by adding Learjet 45s and newer King Airs. Gama also entered the Russian market in its early stages and had some success, Khalek said.

By the end of 2006 the company owned or managed 25 aircraft, employed 130 people and was worth $70 million. “The growth that we had between 2001 and 2006 dwarfed what we had done for the first 15 years of our existence,” Khalek said.
Although the company was doing well in its core European location, Khalek knew it was time to expand. “We decided to broaden our geographical footprint and position ourselves as a global operator rather than just a European operator,” he said. “We felt that there were some problems in Europe that could become a barrier to growth, so we wanted to spread our risk a little bit.”

Khalek cited limited airport and airspace access as the two most crucial issues facing European operators. “New regulations, as they stand at the moment, positively discriminate against business aviation when it comes to busy airports,” he said, explaining that airlines have priority when commercial hubs are pushed to capacity. “By the same token, the environmental issues are forcing governments to restrict and limit the development of smaller airports,” Khalek said. Farnborough Airport, for example, will reach its 28,000 movements-per-year limit this year. “Farnborough is running to capacity, and there’s no room for growth.”

Faced with such restrictions, Khalek opted to seek outside financing to help accelerate the company’s growth and expansion plans. At the end of last year, a private-equity group bought a 33-percent interest in the company. “We were a profitable company and we were doing quite well. We could have funded that expansion ourselves,” Khalek said. “But things we had planned to do over a two- or three-year timeframe with our own resources and funding, we were able to achieve in a much shorter space of time.”

The acquisition of PrivatAir was a vindication of that policy, Khalek said. “The opportunity came up on short notice, and we had to act on it fairly quickly. And without that financial investment, I’m not sure we would have been able to do it in the time scale available.” The acquisition was completed in February for an unspecified amount and brought the number of aircraft in Gama’s fleet to more than 60 and the number of employees to 300.

Khalek admits, however, that he had “mixed feelings” about entering the U.S. market. The Middle East and Far East markets seemed easier to enter because he knew he could bring expertise and experience to the area. “But when you look at the U.S. market, you think, ‘There’s nothing I can do that hasn’t been done before,’” he said. “It puts a different perspective on it. But the U.S. is a huge market, and if you want to put yourself on the international map you have to have a foothold there. Taking even a small market share by being a niche operator in a certain area would be quite good.”

Gama intends to continue its expansion plans, both in the U.S. and elsewhere, but Khalek said he wants the company to grow on a solid foundation. “We’re not in the business of just buying market share,” he said. “We’ll make strategic acquisitions. We are looking at areas that complement our service and increase our offering, rather than just buying companies because they will add 10 airplanes to our fleet.” Gama Holdings recently acquired UK-based Airops, an aviation software firm. “We are also looking at various opportunities in the maintenance field,” he added.

U.S. Operations
At the recent Corporate Aircraft Transactions conference in New York, a prominent aviation attorney stated that foreign ownership “was a huge piece of the FAA’s case against TAG USA and AMI.” Other panelists echoed those thoughts, and there are many others in the industry who also believe it was the driving factor in the agency’s revocation of AMI’s operating certificate and the ultimate demise of TAG Aviation USA.

Khalek, a citizen of the UK, expressed doubt that foreign ownership was at the heart of the FAA’s case against TAG and confidence in Gama’s presence in the U.S. “I’m intrigued by the fact that people continue to refer to the scrutiny by the FAA on foreign ownership. I’m not sure that I see that, to be honest,” he said. “What the FAA is scrutinizing is operational control, irrespective of whether it’s by foreign companies or otherwise. It might have been a contributing factor, but at the end of the day, AMI was not able to demonstrate proper and effective control of the aircraft on its certificate.” He added, “The FAA is concerned only with safety regulations. It’s looking at operational control issues and whether they have an effect on safety standards.”

Gama Aviation, he said, has entered into the same business arrangement that PrivatAir had. “PrivatAir itself was not a Part 135 certificate holder. PrivatAir was a management and services business.” PrivatAir owned 25 percent of the Part 135 certificate holder, FSG, and a U.S. national owned the remaining 75 percent. “We have bought into exactly the same structure,” he said. “And we don’t believe we have an issue with it because the certificate holder does not have a foreign control issue. It is not controlled or owned by foreign nationals.”

He added that Gama is not concerned about the issue. “We’re never afraid of being under scrutiny. We’ve lived with scrutiny all of our lives. It’s the industry we’re in,” Khalek said. “But by the same token, we’re not complacent about any of the regulatory compliance issues. We fully respect the fact that there are rules and regulations, and we take them seriously.”

Aside from foreign control issues, Khalek said Gama has made some “subtle changes” to the business and management structure since acquiring PrivatAir. “In my view, the business was too driven by charter activity,” he explained. “We had to remind ourselves that we’re first and foremost a management business. Charter is secondary. It’s not the driver.”

He was quick to add that PrivatAir’s business model was neither right nor wrong. “It was just different,” he said. “Our main priority is to look after the service of our managed clients, and I think we’re just refocusing the traditional values of service that aircraft owners have always looked for and wanted.”

Khalek added that a recent increase in the need for management services–brought on by an influx of first-time aircraft buyers–also prompted the change. “At the end of the day, an aircraft owner buys an airplane to enjoy the benefits of the product,” he said. “We sell the convenience of allowing that owner to enjoy the asset he has paid a lot of money for, and we take away the hassle of its day-to-day operation.” Khalek added that management companies can also help owners save money on necessities such as fuel, maintenance and insurance. “Yes, we charge a management fee and fees for our services, but I think we more than earn them in terms of the benefits that we deliver and savings that we can offer,” he said.