Questions to Ask Before Acquiring a Charter Company
So, you want to operate a Part 135 company but have decided that the certification process is too long and that purchasing a company which already holds a Part 135 certificate is the better option...but is it?
Any aviation professional who has participated in the launch of a Part 135 charter company will tell you that the path to certification is a lengthy road with many twists, turns, and bumps along the way. For this reason, entities and individuals who want to operate a charter company will often pursue acquiring an existing operation with the intent of shortening the time and effort necessary to actually operate a viable Part 135 department.
In many cases this “shortcut” can be a beneficial strategy for those who do not want to start from “scratch.” However, as with any purchase, the age old wisdom of “buyer beware” applies when purchasing an existing operation. Let’s review a few points which should be considered.
The most important theme when seeking to achieve the goal of acquiring a Part 135 operation is to understand that the FAA expressly prohibits the sale of a Part 135 certificate. This prohibition does not mean that an existing company which holds a Part 135 Certificate cannot be sold, only that the certificate itself cannot be sold as if it is an asset separate from the company. The rationale for this regulation is rooted in a concern for safety of the flying public.
By prohibiting the sale of an operating certificate the FAA has set up the foundation for a transfer of an operation from one owner to the next as opposed to transfer of operating authority from a seller to a buyer. From the FAA’s point of view they have less concern when an operation changes hands without a meaningful change in operational structure or staffing than if they are approached by an operator who intends to sell the operation, gut the company’s staff, and replace management entirely with new personnel upon acquisition of the operation by new owners.
Any transfer of majority ownership in a company holding a Part 135 certificate (or any other operating certificate) should involve a discussion with the FAA. For complex scenarios which have an immediate impact on the size and scope of the operation, the FAA has procedures and standards in place to ensure operational safety is maintained through such a transition.
Beyond FAA approval for the company purchase, when an entity intends to acquire an existing company which holds a Part 135 certificate there are a number of additional points to consider:
What is the basis for a company’s value?
An operator who owns aircraft, hangar facilities, and a long list of ground support equipment presents a very different justification for a purchase price than an operator who leases all of their aircraft and is selling the company on the basis of potential business revenue alone. On the other hand, a company with contracts in place for a guaranteed amount of flying each year represents another consideration.
Often companies fall into one, or a mixture of the categories mentioned above. The specific make up of a company’s assets and existing revenue streams is essential to an accurate determination of appropriate acquisition cost.
It is essential to understand the difference between perceived value and actual value. In many cases business owners overestimate the worth of their company - either because of emotional equity tied up in their company, or because they are hoping to make a quick profit on the illusion of a high revenue potential. Buyers must have the facts regarding existing client base, contracts (including specific contractual language), and real value of company assets (aircraft, buildings, etc.).
How do the existing operational approvals align with the intended purpose of acquiring and operating the company?
The FAA issues certificate holders specific approval for the types of operations intended through Operations Specifications (known as OpSpecs within the aviation industry). One Part 135 certificate holder may have OpSpecs to operate single engine piston aircraft in Alaska while another certificate holder may hold OpSpecs to operate Jet aircraft worldwide providing medical transport services. The difference between the two looks minimal on paper, but in practice seeking the more advanced approvals requires hours of work developing procedures, and tens of thousands of dollars funding proving runs and performing validation testing to satisfy the FAA.
A thorough review of the standing OpSpecs is essential to determine whether a company is currently operating the type of service the buyer desires to pursue.
Standing with the FAA.
A strong working relationship with the FAA Flight Standards District Office of jurisdiction for the certificate holder is essential to the success of any operation. While the FAA will not normally divulge information about an existing operation to a potential buyer, some subtle questions within the aviation community will often lead to a general sense of the reputation an operator has. The information thus gained may suggest that the interested buyer take a more detailed look into the standing of an operator, their safety record, and their compliance record. Does the company have any pending investigations or enforcement actions against it?
The company’s reputation with clients.
A company who has worked diligently to take care of its clients will often be known on the basis of that reputation. The importance of this consideration cannot be overstated when acquiring a company with the intent to do business with the same client demographic. Attempting to overcome a reputation for poor service is a challenging way to begin operating a newly acquired aviation company.
Company culture and morale.
In most cases, when a company undergoes a change in ownership, a large number of staff remain as an essential part of the team. Because of this, it is important to try and understand the nuances of the company’s culture and staff morale. Aviation is a specialized industry which requires that experienced and knowledgeable individuals hold management positions, but those managers cannot function well and lead the company to success unless the frontline staff, who perform day-to-day operations, are invested and enthusiastic about the company and its goals. Toxic company culture (and/or low morale because of mismanagement) pose significant obstacles to business success and, of greater concern, these challenges actively compromise safety. Challenges associated with culture and morale should be identified before company acquisition and - if such concerns exist - a plan should be developed to address and reverse these issues.
What is the desired timeline for company acquisition?
Purchasing a company and commencing operations under new ownership often takes longer than expected. All things related to the FAA take longer than most business-minded professionals deem acceptable. The process of acquiring an existing company can take any number of months depending on the complexity of the operation.
In summary: acquiring a company which operates a Part 135 flight department can shorten the timeline of being able to operate aircraft under Part 135. This may be desirable in some scenarios, but for other situations launching a Part 135 operation from scratch may be a better path to follow in the interest of customizing the operation to the unique business goals of the owners.
In either case, we can provide guidance and help facilitate the process. We have years of experience working with the FAA and would be happy to help your team achieve operational status expeditiously.
Please reach out if we can be of assistance.
207-436-2221
David@Full-Circle-Aviation.com
