Aviation M&A Outlook 2024

In 2023, market volatility and geopolitical tensions reshaped expansion strategies, urging industry dealmakers to eye mergers and acquisitions (M&A) as pivotal for growth and strategic realignment.

Gathering insights from top aviation dealmakers, we delved into the 2024 outlook. Their consensus: M&A remains a strategic avenue for businesses seeking expansion or mergers, demanding careful consideration amidst market intricacies for sustained growth. At the same time, they list several factors that business owners should consider before they delve into any business decisions.

This article will outline the transformative trends that have shaped the aviation industry and continue to exert influence. Specifically, it will delve into the impact of mergers and acquisitions (M&A) on aviation, highlighting the innovative practices introduced while streamlining and eliminating redundant strategies.

Industry Landscape and Challenges

The aviation business, which is marked by resilience, stands on the brink of a transformative period. Recovery strides post-pandemic have been remarkable, witnessing a resurgence in global traffic, order uptakes, and heightened investments across segments. However, challenges loom on the horizon, including inflationary pressures, geopolitical tensions impacting travel schedules, and a profound shortage of skilled professionals, notably pilots, underscoring the industry's struggle to meet resurgent demands.

Geopolitical unpredictability

The pandemic's aftereffects, Russia's full-scale invasion of Ukraine, and the more recent confrontation between Hamas and Israel have demonstrated how swiftly things may shift. In these situations, it is more important than ever for businesses to have a stronger grasp of what they can manage, whether that is preventing supply-chain risks or foreseeing political change. There will be significant elections in the US, India, the UK, and the European Union in 2024. Over the next 12 months, there is a lot of space for more changes.

Plane Manufacturers' Evolution

The intense rivalry between commercial plane manufacturers, notably Boeing and Airbus, has been a focal point in the industry's narrative. Boeing's journey, recovering from setbacks due to the 737 Max incidents and the pandemic, showcases a resurgence highlighted by a significant surge in orders at the Dubai Air Show. Airbus, maintaining its lead in deliveries since 2019, faces intensified competition as Boeing charts its resurgence. Meanwhile, China's COMAC's entry into the market with the C919 adds an intriguing layer to this competitive landscape, aiming to challenge established players and disrupt the duopoly.

The Rise of eVTOLs

Electric vertical take-off and landing aircraft (eVTOL) technology has emerged as a transformative force, poised to redefine urban air mobility. This burgeoning sector is projected to witness exponential growth, with innovative players like Volocopter, Ehang, Joby Aviation, and Archer Aviation spearheading the development. Their pioneering efforts promise a future where commercial electric air taxis and unmanned eVTOLs could revolutionize urban transportation, ushering in a new era of mobility.

Expansion in the Year 2024

Despite the challenges, the aviation business strides forward, driven by burgeoning eVTOL developments, escalating market demands, and increased plane orders. Anticipated milestones in 2024 include an intensified trial activity and the potential commencement of commercial eVTOL flights, marking a pivotal moment in the industry's technological advancements and aspirations.

 

Key factors to consider in M&A in 2024

Negotiations and Changing Market Dynamics

In  M&A, dealmakers are navigating through intricate negotiations and evolving market dynamics. The process of bridging valuation gaps and driving transactions across the finish line has evolved, demanding creativity and strategic ingenuity in deal structuring.

Deal structures to align with buyers’ and sellers’ expectations

The current deal environment necessitates a departure from conventional approaches, prompting dealmakers to explore alternative deal structures that effectively align between buyers’ and sellers’ expectations.

Emergence of diverse capital mechanism

Hybrid or junior capital mechanisms have emerged as valuable tools, aiding in bridging the valuation gap between parties. Innovations like earnouts have gained traction, enabling transactions where, for instance, a new sponsor enters with a minority stake while retaining the existing capital structure. 

Moreover, the rise in mergers of equals showcases the industry's shift towards relative valuation, often simplifying the alignment of synergies and strategic values.

Due diligence in M&A

The process of due diligence, which is essential for risk mitigation and making well-informed judgements, has undergone changes as well. Dealmakers depend more and more on past relationships and interactions with targets in an unpredictable climate.

Boards and investment committees place a strong emphasis on early and ongoing involvement, which helps to create a target list that is ready to go when possibilities present themselves.

This focused method increases buyer trust in valuation judgements by streamlining due diligence and providing a more focused review.

Financial situation

A critical factor influencing M&A activities is the state of financing conditions. While private lenders have expanded and banks have reentered the arena, the emphasis has shifted from tight or loose financing to the cost aspect.

Compared to a year ago, the increased cost of financing has become a prominent consideration, aligning buyers and sellers in value terms taking precedence over sourcing financing.

Dealmakers must acclimatise to this evolving financing landscape. Comfort with the adjusted cost of financing becomes imperative for executing transactions successfully. Shifting expectations to align with these financing dynamics facilitates smoother negotiations and expedites the deal process.

Conclusion

The emerging concept of M&A, adaptability and strategic foresight are crucial for success. Developing evolving deal structures, refining due diligence methods, and flexibly responding to changing financial landscapes are crucial for thriving in the complexities of today's M&A realm.

Due to the fast-paced nature of industry evolution, managing a company single-handedly becomes challenging. When considering a business M&A, having guidance on the current trends in M&A is crucial. A seasoned business expert can bridge the knowledge gap, offering innovative approaches to enhance your existing framework.

Our team of experts at Brookfield Aviation Finance is dedicated to addressing your business concerns and minimizing uncertainties for your next strategic move in M&A.

Reach out to our V.P. Brookfield Finance Ms. Anna Tran at anna@brookfieldav.com, or book a 30-minute free consultation call via  https://calendly.com/anna-brookfieldav/30-min-call  to identify the best objective for your exit strategies.