Kerry Lynch stepped into the role of editor of the&nbsp;Aviation International News&nbsp;monthly magazine in May 2022 after serving with&nbsp;AIN&nbsp;for eight years. She joined&nbsp;AIN&nbsp;in December 2014 as a senior editor covering Washington and business aviation news. She has also served on Convention News teams, including as editor of&nbsp;HAI Convention News. Lynch previously spent 25 years with Aviation Week. During her time there, she reported for and later steered&nbsp;The Weekly of Business Aviation, oversaw business aviation content on the&nbsp;Aviation Week Intelligence Network, served on the&nbsp;Show News&nbsp;staff, and held roles as the Washington columnist for&nbsp;Business &amp; Commercial Aviation&nbsp;and&nbsp;Overhaul &amp; Maintenance&nbsp;monthly magazines. In 2021 she was honored with the National Business Aviation Association Platinum Wing Award for lifetime achievement in journalism and was the 2004 recipient of the National Air Transportation Association’s Aviation Journalism Excellence Award. She also has been a recipient of an Aerospace Media Award for business aviation (2022) and NBAA Gold Wing Award (2003, 2024). Lynch graduated from The Ohio State University with a bachelor of arts in journalism.

Editor, AIN monthly magazine

Kerry Lynch

Mergers and acquisitions activity has been reaching near highs as both the commercial and defense aerospace sectors continue to strengthen, a senior financial analyst noted. The aggregate value of mergers and acquisition transactions reached $70 billion in 2017, a 130 percent jump over 2016 and a rebound toward the record-breaking $90.6 billion in 2015, according to the investment and asset management firm Lazard. And, Michael Richter, managing director and global head of aerospace and defense at Lazard, says this is continuing into 2018 with $31.4 billion in transactions already announced.

 


“We’re breathing rarefied air where both the commercial and defense markets are hitting on all cylinders. That's a rare bird. You don't typically see that,” Richter said. “This will be my best year ever. And last year was my best year ever. The volume is very strong.”

 


He points to several reasons for the rebounding M&amp;A activity, including relatively low interest rates, a “high” availability of capital, relatively loose debt covenants available for deals, and the underlying strong global GDP. Also fueling M&amp;A activities are historic aircraft order books. OEMs are boosting production to keep pace, which is driving stronger financial performance, the investor maintains. The gains are being felt globally, with improvements in emerging markets such as India, Russia, the Middle East, and Asia, Richter said.

 


“This is relatively a strong seller’s market for aerospace and defense,” he said, with more groups seeking to buy, more deals taking place, and deals taking place faster. Supply chains are looking to consolidate and diversify, giving them more access to—as well as bargaining leverage with—Airbus, Boeing, and other primary manufacturers, he said.

 


Conversely, cost pressures from the primary OEMs are forcing smaller, lesser-capitalized entities to seek buyers, Richter added.

 


“A lot of these companies are mom-and-pop operators or backed by smaller financial firms that lack critical financial, managerial, or operational resources to function well at the really high rates of demand,” he said. “They often find or are looking for merger/buyer candidates&nbsp;that help them move to the next level.”

 


While such mergers boost suppliers' bargaining power, from an airframer’s standpoint, these mergers also provide stronger reassurance on the deliverables.

 


The OEMs would most likely rather have the consolidation “than work with smaller players whose inability to manufacture a $10,000 part could hold up a $200 million airplane,” he said.

 


<h2>Potential for Growth</h2>

 


Richter expects this level of activity to continue for the time being. “There’s significant growth in M&amp;A still available,” he said, depending on the sector. One area beginning to gain traction is the aftermarket, Richter said, with high demand for MRO services. “That is an area that is just now starting to get very hot and should continue in the future,” he said, pointing to the recent sale of aftermarket parts producer Extant Aerospace to Transdigm for $525 million. Lazard assisted on the transaction, he said, noting Extant drew 20 suitors and ended up selling at a “substantial multiple.”

 


The demand for such companies is widespread with interested parties from the U.S. and Europe and buyers coming from the strategic side as well as financial sectors.

 


Aerostructures remains an area of interest to buyers, even as consolidation in that sector has already occurred, Richter said. “It’s slowed down a lot…but we’re continuing to get it done,” he said, pointing to three deals Lazard assisted in the past year, including the proposed sale of Asco Industries to Spirit AeroSystems for $650 million, Cadence Aerospace to Arlington Capital, and Gardner Aerospace to SLMR.

 


On the defense side, activity is picking up after the market had been relatively quiet. Many companies had focused on buying back shares, but Richter said, “You can't buy back shares to grow. It was important that they get busy and start building their business and diversify.” So major deals such as Northrop Grumman’s acquisition of Orbital ATK for $9.2 billion have begun to surface. Richter sees substantial interest in companies involved in ISR, UAVs, and cybersecurity. As with civil aviation, MRO remains a strong area of interest in the defense world, he added.

 


Overall, he called aerospace one of the most active sectors for M&amp;A. He said, “You have buyers where there's a tremendous amount of capital sitting on the sideline looking to invest. Aerospace remains as a bright spot in the entire food chain, with some of the best growth and visibility you'll find in the industrial landscape.”

M&A Heats Up As Civil, Defense Sectors Strengthen

MRO is an area that is gaining interest among would be suitors.

2024 Corporate Aviation Leadership Summit

AIN Products

SUBSCRIPTIONS

RESOURCES

ABOUT AIN