US headquartered Global Infrastructure Partners (GIP) has seen its bid for UK listed private jet services company Signature Aviation recommended to shareholders by the company’s board. At the time of the offer, the pound was down 15% from its pre-Brexit peak, making GIP the latest company to take advantage of the pound’s declining value to make an acquisition. If the deal was to be completed under the current terms, Signature Aviation would be bought for 3.4 billion GBP.
Despite GIP’s offer valuing each share at 4.05 USD, a 51% increase to Signature’s trading price before negotiations began, Signature’s board stated that rival offers would still be considered with private equity groups Carlyle, Blackstone & Cascade all registering their interest. Therefore, Signature’s experienced chairman, Sir Nigel Rudd, feels an improved offer could still be made. Whilst the futures of both Signature and the wider COVID-19 impacted aviation sector remain unclear, Signature’s business model provides multiple reasons to be optimistic.
Firstly, the firm is the largest operator of services for private jets in the USA, handling 1.6 million private flights from more than 400 locations every year through multiple lucrative contracts, including with Warren Buffet-owned NetJets. Secondly, whilst COVID-19 may have caused the commercial aviation sector to plummet 91% in May 2020, private air travel had only decreased 19%. By August 2020, the number of private flights recovered when compared to the previous year as travellers attempted to return home before quarantine rules were introduced. The private aviation sector is performing relatively well, given the impact of COVID-19, and the cash influx from GIP’s acquisition, coupled with the firm’s pre-existing infrastructure, means that Signature Aviation is well positioned to continue the return to normality.
Furthermore, VistaJet, GlobeAir and PrivateFly have all reported a significant rise in charters of their private jets with customers willing to pay for personalised itineraries that involve minimal contact with the travelling public. This provides evidence that COVID-19 may stimulate the private aviation sector to not just recover but grow further. In fact, indicators of this trend were seen back in January 2020 when private flights from Hong Kong increased 200%. Personal aircraft manufactures have observed a similar influx of interest, despite starting prices in the range of 2 million USD, with first time buyers aiming to take advantage of the ease, speed and increased hygiene which flying privately offers.
The increased interest of first-time buyers provides a significant insight into the changing attitudes of wealthy individuals post-COVID-19, incentivising those who can afford it to allocate finances for private air travel. The hope for the industry is that these are long term changes in consumer behaviour which will propel sector growth, developments that Signature Aviation are well prepared for. Furthermore, if aircraft manufacturers are able to produce eco-friendly aircraft to bring private flight emissions per passenger mile in line with commercial travel, the danger of the rising prominence of environmental issues could also be avoided.
COVID-19 has focused wealthy individual’s attention on the benefits that flying privately offers, driving increased interest in both chartered and purchased jets. This surge in demand has not gone unnoticed with the competing bids for Signature Aviation demonstrating that the appetite for investing in firms within the private aviation sector is still strong. It remains to be seen whether the rising demand for private flights, and the investment opportunities in the private aviation sector, continue once commercial aviation fully recovers from COVID-19.
By Taylor Alexander
Sector Head: Daniel Aliwell