Selling an air charter company is not much different from selling any other company, save for a few things.
In general, if someone is looking to sell their company, one of the first things to do is hire an investment banker. They’ll be able to prepare the financial information for the business to determine a valuation for the company, which the seller can then use to go out to the market and identify potential buyers or acquirers from the company.
Potential buyers could be competing companies, in a horizontal sale, which offers the competitor an increased footprint, or a vertical deal, which would combine two companies that operate in the same market but are at different stages. Unlike a horizontal sale to a competitor that reduces competition, a vertical deal increases efficiency for the purchaser. The investment banker may also look for a group of investors, depending on the scale of the business being sold. A company will either try to sell the business wholly or offload assets. It will depend on what the buyers find attractive, as with any deal.
Often, it is easier to acquire assets instead of a whole business, but one unique characteristic of a charter company is that it has an air carrier certificate.
Understanding the Air Carrier Certificate
The two basic types of certificates available to U.S. applicants are based on what kind of services the applicant will be providing and where they want to conduct operations. Those types of certificates are:
- Air Carrier Certificate—This is used by a company that will conduct interstate, foreign, or overseas transportation or will carry mail.
- Operating Certificate—This is used by a company that will conduct intrastate transportation, which is transportation that is conducted wholly within the same state of the United States.
Operational Limitations of Various Types of Certificates
Various commercial certificate operating authorities also had to be considered initially when applying for the certificate. Certificate holders can conduct on-demand operations, which may include limited scheduled operations, or scheduled (commuter) operations, which allow unlimited scheduled operations and on-demand operations. Each kind of operation has specific limitations associated with them. These include:
- The number of passenger seats installed on the aircraft
- Maximum payload limits
- Whether turbojet aircraft can be used in that kind of operation
Commercial operators can conduct on-demand operations in airplanes with a passenger seating configuration of 30 seats or less, a maximum payload capacity of 7,500 pounds, or any rotorcraft. On-demand certificate holders can also conduct limited scheduled operations with additional restrictions, like less than five round trips per week on at least one route between two or more points according to published flight schedules, not using turbojet airplanes, and being limited to airplanes with a seating configuration of nine seats or less.
Commuter operations may be conducted in airplanes with a maximum passenger seating configuration of nine seats and a maximum payload capacity of 7,500 pounds or any rotorcraft. Commuter operations cannot be conducted in any turbojet aircraft. A certificate holder with commuter authority can also conduct on-demand operations.
Determining the Scope of the Operation
Also, in the initial application process, the carrier had to determine the scope of its commercial activity that the certificate would cover. The FAA authorizes the scope of operations by issuing operations specifications (OpSpecs).
- A single-pilot operator is a certificate holder limited to using only one pilot for all Part 135 operations. That specific pilot is listed by name and certificate number on the FAA-issued OpSpec. The use of any pilot(s) other than the single pilot listed on the OpSpec is not authorized.
- A single pilot in command (PIC) operator is a certificate holder limited to using only one PIC and up to a maximum of three second in command (SIC) pilots for all Part 135 operations. The PIC and the SIC(s) are listed by name and certificate number on the FAA-issued OpSpec. The certificate holder is only authorized to use those pilots in listed specific duty positions.
- A Part 135 basic operator is a certificate holder whose operation is also limited in the size and scope of their operations. Part 135 basic operators must develop maintenance manuals and training programs and have the required management positions. However, because of the limited size and scope of these certificate holders, specifically limited deviations to those requirements may be authorized by the FAA.
- A standard Part 135 operator is a certificate holder who does not have preset limits on their operations’ available size or scope. When applying, the applicant must apply, qualify, and be granted FAA authorization through OpSpecs for each type of operation they wish to conduct. Standard Part 135 operators must develop maintenance manuals and training programs and have the required management positions.
Considering the rigorous application process, a company can’t sell its air carrier certificate, but it can sell the entity that holds the air carrier certificate. This is the ultimate asset for the buyer since the overall process of obtaining the air carrier certificate can be a tedious and time-consuming endeavor, taking a minimum of six months to complete, and comes with the limitations listed above. For instance, if a company wants the authorization to fly to Europe from the FAA, they’d have to do proving runs. That means flying their aircraft to Europe with the FAA inspector on board to show them that the company knows how to do it. While purchasing assets may be easier, a buyer may not want to reapply for those authorizations.
As for determining the value of the rest of the business, like sales in a broader business setting, the dealers will need to determine the value of various aspects of their operation.
In some cases, it could be the human capital, which includes staff and pilots for air charters. If the company owns its airplanes, each airplane will need to be appraised for its value and included in the deal. If they are leased, advisers of the agreement will need to discuss how the lease could be ported over to the new owner and which ones to keep or terminate. It might also mean the overall brand. Some companies also have operational authorizations and contracts with specific customers, providing secondary recurring revenue streams. Finally, the customers or clients of the charter business will prove to be valuable if they can be included in the deal or convinced to go with the new buyer.
It will be essential to separate tangible and intangible assets because, at sale time, the IRS requires sellers to break down the price into asset categories, which are taxed at varying rates. This means creating an inventory of all the business assets and assigning a value to each based on what it would cost to develop or replace that asset in a similar condition.
Tangible assets include business furnishings, fixtures, equipment, leasehold improvements, inventory, real estate, automobiles, and other significant physical assets. Otherwise, businesses with a strong brand of products, services, or reputation gain value from intangible assets. These include intellectual properties, trade secrets, operating procedures, networks, partners, and more.