Private equity is doing its part to propel the return of planes to the sky.
With a resurgence in air travel and a lag in aircraft production, demand to sustain and refurbish older planes is fueling a rise in PE interest in the aerospace service and maintenance industry.
CORE Industrial Partners, a Chicago-based firm targeting the lower middle market, is one investor preparing to wager on this expected growth. It was founded by John May, who spent 18 years working on deals with institutions including Blackstone and HIG.
In January, CORE acquired Florida-based Aviation Concepts, a provider of used serviceable materials to the aftermarket commercial aviation industry. May said the deal, which sets up the new platform company to consolidate the maintenance, repair and overhaul space, is a testament to the firm’s belief in the market’s long-term growth potential.
He added that CORE has since signed a letter of intent to acquire a pure-play MRO provider as an add-on to build out the new platform, but declined to share details about the deal.
May said his firm started studying the commercial and cargo MRO space more than two years ago and eventually zeroed in on the aftermarket platform after it saw air travel bounce back on the heels of the pandemic.
Riding the tailwinds
May said it was his view that the MRO market—including engine and airframe segments—is projected to grow at up to double-digit rates over the next three to five years.
The number of air passengers has climbed back to near pre-pandemic levels in recent years and is expected to return to 2019 figures by the end of this year, according to a report from Cascadia Capital, a Seattle-based investment bank advising lower-middle-market companies.
However, manufacturers face supply chain disruptions and difficulties meeting the demand for new aircraft. As of 2023, Boeing and Airbus faced combined order backlogs of more than 14,700 units, the Cascadia report says.
Meanwhile, many airlines are also burdened with heavy debt loads. With elevated interest rates making aircraft financing more expensive, these operators’ desire to acquire new fleets has also waned.
“Airlines had to take on a lot of debt during COVID-19, and they weren’t as able to invest as they were in the past,” said PitchBook senior industrials analyst Jim Corridore.
All those factors mean that older aircraft must stay in service longer, bolstering the demand for MRO services.
PitchBook data shows PE dealmaking in aviation MRO and adjacent segments reached a high point in 2020 and then slowed to a steady pace. There have been 13 PE-backed investments in the segment this year through Aug. 15, representing about half of all M&A deals in this area.
There are other examples of PE firms betting on the potential aviation MRO growth.
Bain Capital, for instance, inked a deal in July to make a growth investment in MRO Holdings, a Panama-based maintenance provider for commercial airlines. In another move, lower-middle-market firm Ironwood Capital provided subordinated debt and a minority equity investment in California-based Certified Aviation Services.
AE Industrial Partners also bolstered its position in the sector by acquiring Kansas-based Mid-Continent Aviation Services in March through its portfolio company, Yingling Aviation.
PE funding to drive expansion
Most MRO companies have recovered to pre-pandemic levels, and they need capital to scale their businesses and invest in equipment, facilities and technicians. In pursuit of this growth, MRO companies are increasingly turning to PE investors to fund expansion, AE Industrial Partners partner Bryan McElwee wrote in an email.
He said many MRO companies also seek help from PE firms for their expertise in securing equipment and spare parts from suppliers. The procurement process can be demanding and require strategic approaches and substantial capital that some MROs are unwilling to shoulder alone.
Overall, an influx of PE capital is about to breathe new life into a market that is hungry for fresh capital and eager to unleash more silver birds into the friendly skies.
Featured image by Mara Potter/PitchBook News
