Given its complexity and level of specialisation, the aviation industry requires a distinct method of business valuation. Understanding the various techniques of valuation is essential for business owners and buyers when evaluating an aviation business. This article will examine the 4 most popular methods for determining the value of an aviation company.
1. Market-Based Valuation
A market-based approach determines the value of an aviation business by comparing it to similar businesses that have recently been sold. This method is particularly effective when there is a healthy volume of comparable transactions in the industry. Key factors considered include:
Recent acquisitions in the aviation sector
Comparable business revenue, EBITDA, and fleet size
Multiples of earnings or revenue based on industry benchmarks
For instance, an MRO facility might be valued based on the EBITDA multiples of recent MRO acquisitions, while a regional airline's worth might be estimated by comparing its revenue to similar airlines that have been sold.
2. Asset-Based Valuation
An asset-based method determines a company's value by evaluating its material and immaterial assets, which makes it especially helpful for aviation companies with a lot of assets, like:
Aircraft leasing companies
Airlines with significant fleet ownership
FBOs (Fixed-Base Operators) with valuable real estate
For example, if an aviation business owns a fleet of five large turboprops, the market value of those aircraft minus liabilities will be a primary factor in valuation.
3. Income-Based Valuation (Discounted Cash Flow - DCF)
Profitable aircraft companies with steady income streams, like the following, are most suited for the discounted cash flow (DCF) approach, which calculates the present value of future earnings:
Flight schools
Aerospace parts manufacturers
The DCF model involves:
Projecting future cash flows over a defined period
Applying a discount rate (typically based on the aviation industry’s risk profile)
Calculating the net present value (NPV) of these cash flows
This approach is particularly useful when valuing a business expected to grow significantly, but it requires careful assumptions about future industry conditions, fuel prices, and operational costs, etc.
4. Earnings Multiples Approach
Aviation businesses are often valued based on a multiple of earnings, such as:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation)
Net profit
Revenue (for high-growth start-ups or early-stage companies)
For instance, a profitable flight school can be valued at a multiple of its EBITDA. Depending on the size of the school, buyers and/or sellers might use different multiples to estimate the value of the business.
However, one of the downsides of this method is that it cannot be used for a loss-making company.
Mergers and acquisitions of aviation companies are our area of expertise at Brookfield Aviation Finance. Our team of experts provides professional advice if you're wanting to sell the aviation business to guarantee appropriate assessments based on asset values, market trends, and anticipated future revenues. Clients will feel more confident navigating complicated transactions because of our experience.
If you are interested in working with us either in selling your company or buying a business in the aviation sector, please contact Ms Anna Tran, V.P. Brookfield Aviation Finance via anna@brookfieldav.com. Our team would be delighted to assist you on this journey.
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