Private Equity Sees New Aviation Investing Opportunities With Recent Bank Anxieties

25.08.2023 - 13:55 / skift.com

Financial sector headwinds are creating fresh openings for private equity investments in aerospace, as suppliers’ need for capital to meet soaring demand for planes and parts risks further turbulence, executives said.

Demand from aircraft manufacturing giants has soared on the back of surging global air travel following a pandemic-induced slump. Some of their suppliers rely on midsized banks for capital, and the collapse of Silicon Valley Bank and shocks to banks like First Republic Bank threatens tighter lending.

“While the overall economy may see slower growth or enter into a recession, aerospace suppliers need capital now to support the significant increased demand,” said Charlie Compton, partner at Boca Raton, Florida-based AE Industrial Partners, a private equity firm specializing in investments in aerospace and other sectors.

Some small suppliers were already struggling to find capital to meet production demand for more planes and parts – so private equity firms, armed with record levels of cash, see opportunities to fill the gap. However, that could lead to an erosion of control for small family-owned suppliers.

Regional banks play an outsized role in U.S. commercial loans, JPMorgan analysts said this week, noting that 300 midsized banks account for about 43% of the nation’s commercial loan stock despite having just 25% of banking assets.

Anne Balcer, a senior executive at Independent Community Bankers of America (ICBA), which represents small U.S. banks, said she did not expect a slowdown in credit availability, but not all agreed.

“The bigger risk to the family- and founder-owned aerospace businesses we work with is their reliance on regional banks to finance their working capital and capital expenditure needs, beyond what their businesses can fund themselves,” said Compton, whose firm has about $5.6 billion in assets under management.

Family-run supplier TNT Aerospace, based in Washington state, said it is running into challenges to get capital to expand the manufacture of parts such as precision machined structural pieces to meet demand, President Aaron Theisen told Reuters.

TNT, which counts Safran SA and Triumph Group as customers, got a tepid response from banks due to a weaker balance sheet last year. Theisen questioned whether Silicon Valley Bank’s collapse “will further exacerbate the issues with stingy capital markets.”

He said he would not oppose a private equity investment, as long as he maintains control and the combination makes sense by lowering costs.

Private equity firms have record amounts of cash to put to work, with firms collectively holding an estimated $1.96 trillion in dry powder at end-December, according to data from research firm Preqin, up from $1.62 trillion in