The $2M Aviation Business That Might Pay for Itself

0:00James H. K. D. D. G. J. M. A.:Hello, everyone, and welcome back to Acquisitions Anonymous. This is the Internet's number one podcast on buying, selling, and operating small businesses. Today, we have a fun one. I am here with Heather Anderson and Jordan Flegel from Acquisition Lab, and we review a flight school in California. It's got a million bucks at SDE. They own a couple airplanes. It's a really interesting industry dynamic because there's a lot of structural tailwinds with a pilot shortage. And Jordan also tells us about accelerated depreciation and how you can own this business for free by combining the tax benefits, the write-offs, with an SBA loan to basically be$0 out of pocket to own this business because it has a certain number of assets.

0:42James H. K. D. D. G. J. M. A.:So it's a pretty cool deal structuring conversation in this episode as well. So I hope you enjoy this episode of Acquisitions Anonymous.

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1:34James H. K. D. D. G. J. M. A.:You also get free coaching from people who have actually built and scaled franchise businesses. If you are exploring ETA and want to understand whether franchising fits your acquisition strategy, visit franzi.com. That's F-R-A-N-Z-Y.com. And thanks to them for sponsoring today's episode. Hello, and welcome back to Acquisitions Anonymous. I am here with Heather and Jordan Flegel from Acquisition Lab. Jordan, nice to have you, man. Great to be here. We're psyched to have Jordan because maybe besides Heather, Jordan has seen more deals than maybe anyone I can think of because he helps searchers buy businesses all day, every day.

2:11James H. K. D. D. G. J. M. A.:so we wanted to bring Jordan on to some episodes and have him weigh in from his perspective as someone who's coached a lot of searchers so thanks for being here Jordan thanks for having me long time listener first time on the show so this is cool all right love it well we pulled a classic in classic acquisitions on the style we have pulled a deal that is new to all the hosts so we are learning right along with you so that's a fun part of the show you get to see our live reactions to these deals. So Heather, since you found this one, do you want to take us through it?

2:44Jay Haynes:Yes, I do. And it is also in my home of Orange County. So maybe that's how I found it here, I guess. This is on BizBuySell. It's a high profit, fully operational flight school academy in Orange County, California. Asking price is$1 ,995 ,000. Cashflow SDE is$950 ,000. established in 2015 gross revenue a million eight um business description oh boy this seems like a little maybe some ai was left in here because it says query successful and then it goes into the description uh this successful aviation training business uh offers comprehensive flight instruction programs ranging from introductory discovery flights to full certification for private and commercial pilots, including specialized airline pilot tracks.

3:35Jay Haynes:Key characteristics include they offer a structured curriculum for the airline pilot program, a private pilot program, and an aviation camp, and they accept international students. Instructors, the training is conducted by experienced instructors, some of whom are former airline and commercial pilots. Value proposition. They emphasize clear set pricing with no hidden fees, no club fees, fuel surcharges, or taxes, and offer flexibility, pay-as-you-train options with no deposits required. Partnerships. The school maintains strong industry relationships, including a partnership with a major airline to provide a pilot pathway program.

4:20Jay Haynes:A lot of Ps there, sorry. And an affiliate partnership with an established aviation college. The business operates a fleet of fixed-wing airplane aircraft maintained to high federal standards and provides training in a fun, professional, and fully certified environment. The aviation training industry is in a period of robust and sustained growth, primarily driven by an acute global pilot shortage. Flight school market outlook. Strong growth. The flight school market is projected to grow significantly with a CAGR of 6 % to 14 % through 2034 due to high demand for entry-level training. Key drivers.

5:02Jay Haynes:Growth is fueled by massive airline hiring needs, global air travel recovery, and expansion in regions like Asia Pacific. Operational dynamics. Flight schools benefit from high enrollment but are challenged by a shortage of flight instructors who are rapidly moving to airlines and the high cost of equipment. The future will emphasize advanced simulation and closer partnerships with airlines, including airline-owned academies, to secure the pilot pipeline. Interesting. That sounds like the competition. Commercial pilot demand, critical shortage. The commercial aviation sector faces a structural shortage, which is expected to worsen before peaking, driven by a wave of mandatory retirements.

5:41Jay Haynes:um higher high hiring major forecasts project a need for over 660 000 new commercial pilots globally over the next two decades uh favorable career although post-pandemic hiring surges have normalized the long-term outlook for remains highly favorable aspiring pilots enter training today are well positioned to capitalize on the sustained high paying demand and rapid career advancement in the next decade oh a lot of ai felt i felt like a lot of ai there um yes and

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7:34Jay Haynes:Inventory, 900 ,000. what?

7:37James H. K. D. D. G. J. M. A.:Airplanes, baby. That's got to be the airplanes.

7:40Jay Haynes:It seems like I would call that equipment rather than inventory. It's got to be airplanes. Facilities, executive office with pilot study lounge and flight simulator room. All computers and furniture. Competition. They talk about the shortage of pilots again. More about the growth and expansion again. Repetitive stuff. Let's see. Financing available. They don't say SBA. and a seller may finance, okay, and must have knowledge of industry and owner will stay on at part-time capacity for two months. He started his own jet charter business. He is the chief pilot.

8:18James H. K. D. D. G. J. M. A.:Oh, huge bomb at the end. Yeah. Huge bomb at the end. Okay. He's coming away. Okay, so Jordan, what does this business do? In your understanding. And they train people to be pilots. So like professional pilots, I get the sense they are doing some of kind of private pilot. You want to fly your own aircraft, but I think there's a sizable portion of you're going to become an airline pilot. You're going to fly for America Airlines, United, et cetera, after going through this school. You know, part of my ignorance, Bill, maybe, you know, maybe you don't, but is there not? I don't know. The major airlines, Delta, American Airlines, United, do they not have their own training programs?

9:00James H. K. D. D. G. J. M. A.:Is it really like you can just go to any random flight school and learn, and then you can actually get a job at one of these big airlines? I always thought it was more you come out of the Air Force for something, you transition into a commercial career, or you go through some program that they have. It just seems weird that they don't sort of own that whole pipeline end to end, or there's not a more clear way of becoming a major commercial pilot versus going to space.

9:26Jay Haynes:I have come across this before. So I think there's both. And I think the teaser kind of told us that the airlines are going to beef up their programs to help themselves with their own shortage. So that becomes maybe this company's competition. But in fact, yes, people can start out in a private pilot training program. What I understand is they just got to get a certain number of hours at each level. And so this is the most basic level. And you still have to get so many hours at this level of flight time before you can be eligible for like a regional pilot position in an airline. So I think because it's all about flight hours, you've got sufficient demand for these kind of independent companies kind of going alongside the airlines as well.

10:15I did a deal a number of years ago, very successful searcher deal where they flew airplanes over pipeline, oil pipeline.

10:27Jay Haynes:And the reason they do that is to find where it's leaking. So this is in the Permian Basin of Texas, and that's how you find out what's leaking and where exactly it's leaking. And there was a service to the oil companies that this business performed. And I learned a lot. That business itself was the pilots that they had coming in and going out were just getting their hours. They were just flying in that business for a few months, basically, so they could get enough hours to go to the regional pilot programs. And so there's all kinds of things that they look for. You know, how can I get more hours?

11:02Jay Haynes:And what's interesting is a lot of the flight instructors at this low level are just getting their hours. They're still actually kind of new pilots as well. And they're teaching flight school to get their hours.

11:16James H. K. D. D. G. J. M. A.:Well, Heather, that's not this business, but I love that the pipeline inspection business, their pilots are probably doing it nearly for free just to get their hours so they can advance. It's kind of like that. Do you remember the farrier business we looked at? Yeah. Horseshoeing business a long time ago where it was a farrier school and they were able to basically charge people to have their horses shooed while their students learned at the farrier school. Kind of the same thing in the business you talked about. So, and, you know, Jordan, I think to answer your question, it's probably both and like, I know all of the major airlines are training pilots, but in an acute pilot shortage, you know, you're more than happy to hire an already trained pilot off the street if you can versus somebody that you've got to handhold and bring all the way up.

12:01James H. K. D. D. G. J. M. A.:I think if you probably come out of the military or something, you go through the American Airlines flight school and learn how to fly 787. But if you can come in, you know, there's only so many guys coming out of the military that know how to fly airplanes. So this probably, you know, supplements that pipeline. So the folks that come out of these programs probably sit right next to the military aviators in the learn how to fly a 787 class at American Airlines, I would think. If I had to guess, I would assume that the majority of their clients are looking to be their own, you know, fly solo, solo pilots, fly their own small plane.

12:37James H. K. D. D. G. J. M. A.:The co-founder of my first company did this and he went through the flight school, got his hours and he flies a small four-seater and it's great take a little trip you go to two-hour flight go to you know have lunch on martha's vineyard in nantucket or the hamptons or whatever he lives he lives here in new york city and and fly back it's just super fun but yeah i know for him the decision was based on location i i feel like uh bill and heather this is maybe the type of business where you know location matters the most to get your hours in because you've got to go often. And so you're not going to go for a week to do this and then fly back to wherever you live.

13:16James H. K. D. D. G. J. M. A.:You're going to probably want some place you can drive to. So imagine sort of location and maybe not so much the sort of, which is, I think, to the positive of potentially buying this business. I don't imagine I sell chief pilot. The seller is the chief pilot. But it doesn't feel like a business where the personal brand reputation of the owner is what would maybe push someone into paying for the service or not versus just the location and convenience and I guess price point. Is that your understanding too or do you think brand matters for a small place? I think so. It's so funny that we're recording this podcast episode today because last night I was at Fantasy Football Draft and one of the guys in my fantasy league is an instructor pilot.

14:00James H. K. D. D. G. J. M. A.:So he works at one of these businesses. So he lives here in Charlotte, North Carolina, but he works in Mississippi at this flight school in Mississippi because he basically has his pick and they're paying him the most. So he said everybody at their flight school is just desperately trying to get their hours. They're just like there's a pilot scarcity. You know, you've got to get, I don't know how many hours it is. It is a lot though up in the air and you need, you know, qualified trainers that can fly with you and you can book it. And there's a shortage of them too, because they're all getting pulled into the airline pilot programs.

14:38James H. K. D. D. G. J. M. A.:It even says this here on the competition section that are challenged by a flight school's benefit from high enrollment, but are challenged by a shortage of flight instructors who are rapidly moving to the airlines and the high cost of equipment. So what's interesting about this business is the value here. We've spent, Jordan, you've probably seen this at Acquisition Lab with all the people buying the home services businesses that are very dependent on HVAC technicians and master plumbers and all these things that are hard to source and retain. I think you have the same thing going on here in this flight school, that the flight instructors are the scarce resource.

15:16James H. K. D. D. G. J. M. A.:And if you have enough flight instructors, the demand will find you. If you don't have enough flight instructors, you can't deliver the service, you can't deliver the hours, and your business is not going to go so well. So for me, that is a primary point of diligence here is who are my instructors? How long tenured are they? How well do we pay them? How does that compare to their alternatives in the marketplace? And how are we kind of sourcing? Do we have any kind of durable advantage or something that we can offer to flight instructors so I'm always going to be fully staffed? Because if you're not, you're going to be in a world of hurt, I think, pretty quick in this business.

15:53Jay Haynes:Yeah. Labor supply is the constraint. A lot like home health. We see home health care companies with the same thing. You have lots of demand, but your constraint is usually the labor. And it feels like that's the same thing here. The seller did point out, must have industry knowledge. so on the surface it seems like you could come along and buy this flight school without being a pilot but the seller's kind of telling us he doesn't think so thinks maybe you should have

16:21James H. K. D. D. G. J. M. A.:some industry knowledge before you try to run this school i mean before i teach people to fly at airplanes you know i would think i should at least get my own pilot's license at a minimum give you some credibility yes is there a license heather and and and if you're buying this as an asset sale, that might be a concern, no?

16:39Jay Haynes:I don't know if there is a school license. That's an interesting question. You know, in some forms of, you know, professional education and technical education, you do have licensing and credentialing. They didn't mention it here. So I'm sure what it probably boils down to in this case is it's the credentials of the instructors that are going up in the plane with you. You know, the teachers basically must be credentialed. Maybe not the school. You know, maybe that's not necessary. But they're offering a pretty fair multiple, if we're to believe this SDE. I'm very intrigued by that.

17:16James H. K. D. D. G. J. M. A.:That's what I'm so curious about, guys, because this is by the description. Now we have not signed the NDA, so we don't have the financials, the trending financials. But by the whole description and what we know about the industry, this is a capacity-constrained industry with a whole bunch of demand with sort of structural tailwinds. And this business has a million bucks of cash flow, and they're asking two times for it, two million bucks of total purchase price. What gives? Why such a low multiple?

17:45Jay Haynes:I wonder, it could be the recent growth. Maybe they were smaller last year and the year before, and they have not factored in or told us much about the aircraft fleet and maintenance capex so it's very possible that your million dollars of cash flow cuts gets cut in half if maybe could even be worse uh based on the cost of maintaining

18:09James H. K. D. D. G. J. M. A.:the aircraft fleet um because they said they've got nine hundred thousand dollars worth of airplanes

18:16Jay Haynes:um so that sounds like a lot and they said it's a fleet so is that that's three at least

18:23James H. K. D. D. G. J. M. A.:yeah probably three small small airplanes so that mean the purchase price is three million bucks so 3x sd i think you're making a good point heather about the capex to maintain the airplanes i mean that's i would hope that would be in this taken out of this 950 but maybe not it so rarely is on

18:44Jay Haynes:a teaser listing that i'm assuming it's not so and i don't yeah there is a business broker on this George Cozem of the Chase Group. But that's my concern is that is that really 950 of cash flow after I take it and you know maintenance of aircraft is extreme of course as it needs to be. The maintenance logs are extremely detailed and what you have to do at certain number of hours you know miles or whatever hours of use is just totally regimented. So you would hope some of it's built into the P &L, but you've got to believe there's some CapEx, like replacement of the plane. You know, like how old are these planes?

19:25Jay Haynes:And if you are to grow, you are also CapEx constrained because you've got to buy another plane.

19:31James H. K. D. D. G. J. M. A.:Yeah, that's the other problem is that you kind of have this lumpy stair-step growth where you got to buy more planes. So your growth here is constrained by ability to source flight instructors and ability to have enough operational airplanes for them to fly. Right. Otherwise, I mean, with this, it's kind of interesting. You can almost think of this as a marketplace business, right? Like you are trying to aggregate demand from students with the instructors and the flight time for them to go up together. And you're kind of matching that three way, the two way people plus the assets. I think you're both absolutely right to drill down on CapEx as well as the staff side.