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December 7, 2011
Despite challenges, PE interest in aviation deals maintains altitude

Wall Street Journal, By Jonathan Shieber

December 7, 2011 – American Airlines might have declared bankruptcy, but private equity investors seem to think there’s more than a wing and a prayer left to aviation deals.

A steady stream of cash has been flowing from private equity coffers into airline service providers and component manufacturers throughout the fall.

At the smaller end of the market, Moelis Capital Partners announced in early December that it bought airline services firm Flightstar Aircraft Services LLC. The company makes most of its money providing safety and maintenance checkups for Boeing’s big passenger jets, along with a smaller business retrofitting planes for cargo, rather than passenger, transport.

It’s a business that Moelis Capital Partners principal James Johnston thinks has a lot of room on the runway. “There’s an opportunity to grow organically [and] over time there is an opportunity to expand the business through acquisitions,” he said. “We believe we’ve found the premier company in this space.”

In November, Blue Point Capital Partners acquired Selmet Inc., a manufacturer of titanium castings, and Altus Capital Partners made the first commitment from its second fund into Models & Tools, which sells tooling systems used to make commercial airplanes and helicopters.

Altus Senior Partner Greg Greenberg explained that the tooling systems are customized to move specific aircraft parts–for example, a wing or a fuselage–throughout production, making the company’s products “mission critical” to the assembly process.

The business is split fairly evenly between defense and commercial customers, said Greenberg.

Meanwhile, in October, Warburg Pincus announced that it had completed the recapitalization of Pomona,Calif.-based Consolidated Precision Products Corp., which makes castings for aerospace, military and industrial applications, according to a statement.

The New York firm has been investing in airline-related industries for some time, having owned interests in such companies as aircraft components maker TransDigm Group Inc. Warburg continues to hold interests in such businesses as Survitec Group Ltd., a provider of flight seats and escape gear and other survival equipment used on airplanes.

Other private equity firms could have the opportunity to buy into the airline business as well. Republic Airways Holdings Inc., which is backed in part by TPG Capital, is planning on selling its Frontier Airlines business, according to a November report by Dow Jones Newswires.

One attraction for buyers could be the final contract that was announced for Frontier to acquire 80 Airbus A320 neo-family planes, a revamped version of the best-selling aircraft. Frontier may emerge as the U.S. launch customer for the plane, with some coveted early-delivery slots.