Built-up demand for airplane maintenance, repair and overhaul services (MRO) is whetting private equity’s appetite to invest in the sector, ATL Partners co-founder and partner Paul Teske told PE Hub in an exclusive interview.
Later this morning, the New York PE firm will announce a majority investment in Aero Accessories & Repair, a Miramar, Florida-headquartered company focused on servicing cargo and commercial airplanes.
“Right now, on the commercial side, we are seeing a lot of activity in the aftermarket space and our expectation is that it is going to continue,” Teske said. “Cargo activity has remained strong throughout Covid, and it was a nice balance to the portfolio when the commercial side took a hit.”
To keep flying during the height of the covid pandemic, some commercial planes were converted into cargo planes to meet growing demand for airfreight after rising congestion and delays at seaports.
Aero Accessories is a family-run business, operated by David and Kevin Vail, a father-and-son team. Teske said ATL was impressed by how the company weathered pandemic-related challenges.
“We met the Vail family, founders of Aero, about three years ago, prior to the pandemic, and [have] closely followed them since,” said Teske. “Throughout the pandemic, they reinvested in the business and opened a new facility in Miramar, Florida. As a result of their leadership and reinvestment, it’s a company that emerged from covid a lot stronger.”
In terms of growth, Teske said his firm will support management’s organic vision for the company, which includes key new hires, while taking advantage of consolidation opportunities within the company’s core markets.
“The company has never executed strategic M&A, so we will bring our expertise to support this area of growth. Specifically, we see opportunities to expand in North America, Europe and in new markets, such as defense,” he said.
As the aerospace sector is recovers from pandemic-induced slowdowns, the tight macroeconomic environment comprised of high inflation and fears of a recession is posing another serious threat.
“If there is any economic turbulence in the next 12 months, we are going to be in a good position to capitalize on attractive acquisition opportunities and focus on growth rather than any other potential risks,” Teske said, adding that indicators such as forward bookings and load factors show that demand will remain strong over the next six months.
“We expect the delivery of new aircraft will continue to be slower due to supply chain issues at the [original equipment manufacturers], so that means current planes are going to be flying longer. That plays into the services Aero Accessories provides to airlines and cargo operators.”
The Aerospace deal marks the sixth family- or founder-owned company that ATL has invested in since 2015. Last year, the firm scooped up Austin-based Arrive Logistics, a tech-enabled freight brokerage; and GEOST, a Tucson-based provider of small-to-medium sized electro-optical/infrared sensors for national security space missions.
ATL regards Aero as a platform investment. “This is a scarce asset with a strong margin profile,” he said. “We think there could be significant strategic interest down the road. Our focus right now is to bolster Aero Accessories’ capabilities and continue to diversify the business.”