Post-pandemic air travel spurs aviation aftermarket

Bustling post-pandemic air travel is attracting private equity firms such as Core Industrial Partners to invest in the aftermarket sector for the commercial aviation industry, managing partner John May told affiliate publication PE Hub.

Core Industrial earlier this month made a platform investment in Aviation Concepts, a provider of rotatable components to the aftermarket commercial aviation industry based in Sunrise, Florida.

The covid-19 pandemic widely disrupted the aviation industry, but the situation has changed and the aviation sector has bounced back to its pre-pandemic levels, according to the International Air Transport Association.

“Since the pandemic has waned, air traffic has significantly rebounded,” May said. “We are seeing near record highs of new production orders for aircraft.”

Founded in 1991 by Dean Wood, Aviation Concepts serves a wide range of customers from large airlines, maintenance repair and operations (MRO) shops and parts distributors, among others.

The demand for used serviceable materials is expected to grow by double digits in the next five to seven years, said May. This growth, together with the MRO, “is expected to significantly” continue as new planes come online.

Major aircraft manufacturers are dealing with huge production backlogs, added May, and this opens opportunities for companies like Aviation Concepts. “The focus by the manufacturers is to meet production quotas as well as the continued demand for refurbishing existing aircraft,” he said, adding that Aviation Concepts has over 200 customers in over 40 countries.

As more people travel for business trips and for leisure, demand for air travel is expected to continue growing. But air cargo is another opportunity for Aviation Concepts. During the pandemic, retailers and other businesses turned to airfreight to move goods around as the snarled supply chain caused blockages at seaports. Demand for original equipment manufacturers for both passenger and cargo planes is sustaining, said May.

The supply of airplane components and airframes was also affected by constrained supply chains.

“There have been some supply chain constraints that will drive continued use of used serviceable materials,” said May. “If you look at the new generation of aircraft and difficulties of getting those off production lines or situations where we see some different aircraft models being grounded because of issues – all of that are tailwinds that largely help this type of business.”

Recently, the Federal Aviation Administration ordered the inspection of Boeing’s Max fleet and other models that developed challenges with the door plug.

The sector is also fragmented, a factor that will help stir M&A. Among other organic strategies, May said the target will be to expand into different types of commercial airline customers to capture a bigger market share.

“You’ve just got a confluence of really interesting tailwinds coming off the heels of the pandemic,” he said.

The bigger picture

In its Outlook 2024 report, investment bank Harris Williams predicted a resurgence of activity among complex components suppliers to major aircraft OEMs like Boeing and Airbus, which are now resuming their ramp-up of commercial aircraft production.

“Overall, there is much more optimism across the commercial aerospace supply chain for both production-oriented and aftermarket-oriented businesses after the industry faced years of disruption,” read the report. “And with more aircraft flying in 2024 to support largely recovered passenger demand, the need for nondiscretionary, recurring aftermarket services will continue to grow.”

Core Industrials is not the only firm picking up opportunities in the aviation aftermarket. Arcline Investment Management last week agreed to acquire Kaman Corp, an aerospace company in Bloomfield, Connecticut, in a take-private deal for about $1.8 billion.

Founded in 1945 by aviation pioneer Charles Kaman, Kaman produces and markets proprietary aircraft bearings and components, miniature ball bearings, proprietary spring energized seals, springs and contacts, wheels, brakes and related hydraulic components for helicopters, fixed-wing and unmanned aerial vehicle aircraft, and complex metallic and composite aerostructures for commercial, military and general aviation.

Earlier this month, RTC Aerospace, which is backed by Stellex Capital, acquired Vanderhorst Brothers Industries, a maker of complex machined components and high-precision parts based in Simi Valley, California.

RTC is a manufacturer of high-precision components for commercial and military aircraft and varied aerospace and defense applications.

And then Arlington Capital Partners recently formed Kinetic Engine Systems, a manufacturer of precision aerospace and defense engine components.

Kinetic was formed through the combination of the engine assets of existing Arlington portfolio company Cadence Aerospace and the newly completed acquisitions of Walbar Engine Components, Numet Machining Techniques and AeroCision.

Kinetic has six centers located across Massachusetts, Connecticut, Arizona and Mexico.

For more on this sector, PE Hub rounded up six deals in June last year.