The business and private jet market has been experiencing solid growth in recent years. The global business and private jet market was valued at $28.1 billion in 2022 and is projected to grow at a compound annual rate of 16.2% between 2023 and 2033. The private jet industry has evolved to become a luxury service that accommodates individuals and businesses who value their time and privacy.
Sky Harbour Group's role
One company that is taking advantage of this demand is Sky Harbour Group Corp. (SKYH, Financial). The aviation infrastructure development company is building the first nationwide network of hangar campuses for business aircraft. The company builds, leases and manages general aviation hangars across the country, targeting airfields in markets with significant aircraft populations and high hangar demand. These hangar campuses feature exclusive private hangars and a full suite of dedicated services that are optimized for home-based versus transient aircraft.
Expansion of Sky Harbour campuses
Sky Harbour campuses are open and operating at Houston’s Sugar Land Regional Airport, Nashville International Airport and Miami Opa-Locka Executive Airport. The company is also developing new campuses at Denver Centennial Airport and Phoenix Deer Valley Airport, both of which are under construction, as well as the Dallas Addison Airport, which is in the permitting stage.
The company opened its first facility in 2021 and went public through a special purpose acquisition company transaction in January 2022. It currently has a market capitalization of $248 million.
Industry growth and demand
The infrastructure footprint of the domestic business aviation fleet grew by almost 28 million square feet in the 10 years before the beginning of the Covid-19 pandemic. However, hangar supply lagged dramatically, especially in key metropolitan markets. As the fleet of private jets in the U.S. continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium, in part because new jets require more square footage and the pace of construction has lagged behind the demand.
The cumulative square footage of the business aircraft fleet in the U.S. increased 50% between 2010 and 2021. Over that same period, there was an 81% increase in the square footage of larger private jets, or those with greater than a 24-foot tail height. A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next 10 years, with up to 8,500 new business jet deliveries worth almost $275 billion expected to be delivered between 2023 and 2032. The current order backlog for new business aviation aircraft is approximately $47 billion.
Consumer demand in the private jet market
One of the main drivers of growth in the private jet market is the increasing demand for individualized travel experiences. Private jet consumers are willing to often pay a high premium for the convenience, comfort and privacy offered.
Vertical integration
On May 12, the company exercised its option to acquire a controlling stake in RapidBuilt, which is a Texas-based manufacturer of pre-engineered metal buildings. Sky Harbour had previously executed a strategic supply agreement with RapidBuilt in July 2022 to guarantee production capacity and achieve ideal manufacturing margin for its hangar construction projects.
With this acquisition, the company believes the vertical integration will enable it to deliver hangar buildings to each of its development sites in shorter timeframes and reduce the overall construction cost and duration of each of its projects. The company paid nominal amounts for its initial 51% equity stake and agreed to assume its senior loan obligations of approximately $10 million. This acquisition should be accretive to Sky Harbour through immediate projected construction and operational savings.
Financial performance
The company reported first-quarter results on May 14. Revenue increased 179% from the prior-year period to $1.1 million and the operating loss decreased to -$4.7 million. Earnings was a loss of 41 cents per share. The cash burn rate was $4.5 million.
The Houston, Nashville and Miami facilities are 94%, 64% and 67% leased, respectively, as of May 12. Full occupancy is projected to be reached by end of the third quarter.
The company maintains strong liquidity of approximately $165 million, which includes cash, restricted cash and investments. There are also bonds outstanding, which total $162 million.
Valuation
The company is not yet profitable as it is still in a development stage as it builds out additional hanger projects. With a market cap of $248 million and expected revenue this year in the $5 million to $10 million range, the price-sales ratio remains elevated.
It appears there are no Wall Street analysts that are covering the company at this time.
Summary and future prospects
The company’s scalable business strategy addresses the increasing disparity between the supply and demand of private jet storage. The business model also addresses the lack of hangar facilities able to accommodate larger private aircraft.
Sky Harbour targets its development at airports with excess demand for private hangar space, typically near larger metropolitan areas, which include both established and growing markets. The company intends to capitalize on the existing hangar supply shortage, particularly for high-end tenants, where the existing hangar infrastructure may become obsolete and generally above capacity at major U.S. airports.
If the company can maintain sufficient liquidity levels until it turns cash flow positive, this could potentially make for a solid small-cap growth opportunity.
