02/10/2013

Forecast International Says Flexjet Sale the Culmination of a Radical Restructuring of Fractional Industry

flexjet logoAccording to Forecast International, the upcoming acquisition of Bombardier's Flexjet fractional ownership subsidiary by a group headed by the investment firm Directional Aviation Capital will have far-reaching consequences for the fractional industry. The sale represents the culmination of a radical and phenomenally quick restructuring of the fractional ownership industry. A definitive agreement was announced in early September for the purchase of Flexjet, through a newly formed entity dubbed Flexjet LLC, by an investor group led by Directional. The transaction is subject to regulatory approvals and other conditions, and is expected to close by the end of 2013.

According to Forecast International senior aerospace analyst Raymond Jaworowski, "The Flexjet sale is especially noteworthy in that it will provide Directional with ownership of two of the world's three largest fractional outfits." Directional already owns Flight Options, the second largest fractional provider, and will now add the number three provider Flexjet. Directional will thus have a huge slice of the fractional market, though it may still trail industry leader NetJets.

Directional intends to maintain Flight Options and Flexjet as separate operations. Despite this intention, the acquisition will essentially be the culmination of a process that is seeing the fractional industry consolidate from four big players down to two. This consolidation is occurring quickly, being played out over the space of less than two years. It began with the February 2012 announcement by one of the Big Four, Cessna-owned CitationAir, that it was exiting the fractional market in order to focus on its aircraft management and charter businesses. The three remaining players (Flexjet, Flight Options, and NetJets) will now become two with Directional's acquisition of Flexjet.

Jaworowski said, "The current consolidation of the fractional industry involves the exit of business jet manufacturers from direct ownership of the big fractional providers." Fractional subsidiaries had provided their OEM owners with a pipeline and a ready market for their aircraft. However, with CitationAir leaving the business, Flexjet was left as the last big fractional provider to be owned by a business jet OEM. Its acquisition by Directional will change this, as Directional is an independent company. NetJets is owned by the investment firm Berkshire Hathaway.

The consolidation process is taking place against the backdrop of a fractional market that itself has been experiencing considerable change. The growth of the fractional outfits from 1995 through 2008 helped drive the booming business jet market of those years. However, with business jet demand slumping badly during the economic collapse that began in the second half of 2008, the fractionals took a beating. More recently, though, the fractionals have started to turn things around, with growth in the fractional market starting to return.

According to Jaworowski, "The fractional business has become a mature market, and the growth in the business seen in the late 1990s will not be duplicated anytime soon, if ever. Even with its ups and downs, though, the fractional concept has a solid future." Fractionals will remain a force in the business jet market, but perhaps more as a stabilizing factor than as the explosive growth driver they once were.

 

Source: Forecast International

URL: http://www.forecastinternational.com/press/release.cfm?article=268#.UkwJnD-gRGY

Source date: September 23, 2013

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