Harris Williams recently advised ATP, a premier global provider of information services and software solutions within the aviation industry, on its acquisition of Flightdocs. Flightdocs is a leading provider of aircraft maintenance tracking and inventory management solutions within business aviation.
The combined company will deliver cloud-based software solutions for aircraft maintenance tracking, troubleshooting, recurring defect analysis, inventory management and flight scheduling—combined with a robust library of technical publications and regulatory content.
Here, we discuss what makes the aviation software market an appealing sector for platform builders, why Flightdocs was especially attractive to ATP and key principles for buyers seeking to tap into the potential of this unique space.
What is the investment case for software in the aviation sector?
Szyndlar: The aviation sector is a large, fragmented market benefiting from several positive trends. Those trends include rapidly growing adoption of software-based solutions across all facets of the aircraft operations ecosystem, increasing use of machine learning and workflow automation capabilities within maintenance, repair and overhaul (MRO) facilities, and increasingly complex aircraft that produce exponentially more data than they have historically. There is growing acceptance within the aviation industry of all the things software can do—from basics like digitizing manuals and other publications to predictive analytics-driven maintenance and repair to adding remote connectivity to the devices used to load cargo onto planes.
Smith: For a variety of reasons, the aviation industry has generally been slower to adopt software than some other industries, so there are plenty of challenges left to be solved by technology. That creates an opportunity for companies that can address important customer focus areas with a powerful portfolio of solutions. At the same time, the aviation software sector is currently populated by many smaller, specialized players. In other words, for buyers with well-developed investment theses, it’s an ideal space to build aviation software platforms out of leading niche providers.
Rogers: Information services, particularly related to maintenance services, is an especially active area. As the global fleet of commercial and private aircraft expands, MROs will see increased demand. They are looking for ways to increase productivity and efficiency, and software has the potential to do both. Aircraft owners and operators, including airlines, are also looking to software to reduce their costs while keeping maintenance fully up to date, a challenge that has become even more relevant with the COVID-19 downturn. When people are scrutinizing their cost structures, software can be a great solution to drive efficiencies.
In addition, the new generation of “E-enabled” aircraft generate massive volumes of data on performance and maintenance issues. Simply collecting and managing that data creates an equally massive opportunity for software companies conversant in aviation. Using software to optimize maintenance and repair operations can dramatically cut costs and equipment downtime.
What is particularly appealing about the combination of ATP and Flightdocs?
Szyndlar: This combination addresses what we were just discussing, in effect creating a scaled aviation software platform that solves important customer needs in the aviation industry.
Before the acquisition, ATP already had the world’s largest digital repository of aviation-specific technical and regulatory information. It also had a unique offering that identifies hard-to-diagnose and recurring maintenance issues. Flightdocs brings a full suite of aviation management software that perfectly complements those solutions. Flightdocs’ platform integrates maintenance tracking, inventory management, parts procurement and flight operations within a single system, boosting efficiency, aircraft uptime and aircraft value.
Smith: I would also emphasize how the two companies’ business models complement each other. They both have subscription-based recurring revenue and solid organic growth potential. Each solution is mission-critical to their customers, as evidenced by very low churn, even in the current COVID-19 environment. The two management teams also are aligned on their vision for the combined platform, with clearly defined organic and acquisitive growth strategies.
What are the most important considerations for other potential buyers looking to build aviation software platforms?
Szyndlar: As with most software investments, even outside aviation, the key questions are around customer usage and the “stickiness” of the solution. How embedded is the software into customers’ daily operations? How much easier does it make people’s jobs? How much pain would be created if it went away?
Anyone looking to invest in the aviation sector needs to have a view on the long-term sustainability of the business. Especially now, as we witness the impacts of COVID-19, it’s imperative to understand how the business has performed through past downturns. Is the company’s solution something people will turn off when cost structures are under pressure, or will it become even more important? As a buyer, you really need to dig into those questions.
Smith: We expect to see new sales slowing at times like this, but it’s critical to look at long-term customer retention, as well as the general health of the end-markets the business serves. If those end-markets are struggling and not keeping the software, that’s an issue. But that is not what we are currently seeing in the aviation sector, despite a set of pressures brought about by COVID-19-related reductions in aircraft flight operations and maintenance events.
Rogers: I’d also think about competition, especially in this sector. You need to understand which elements of the aviation ecosystem the software is addressing, and who or what the competition is. Does a solution compete against paper maintenance manuals or homegrown spreadsheets, or a major incumbent player or aircraft OEM with a powerful brand and relationships?
Buyers should ensure that they can quantify the P&L impact to customers from using the target company’s software. That could be related to becoming more efficient, through scheduling employees or better understanding demand for labor and parts. It could also be on the predictive maintenance side, using the software to streamline complicated aircraft system maintenance issues or identify when to take an asset out of service for a maintenance event.
Smith: Aviation OEM dynamics are another important factor for consideration. OEMs are a fundamental aspect of the aviation ecosystem and buyers need to understand how the software application or service cooperates or competes with them. Many software companies compete with solutions that have been developed by OEMs or some of the large service providers.
How does the software solution fit within that construct? If you are getting maintenance data from an aircraft, who owns that data? Is it the OEM who made the plane or the part? Is it the airline who operates the asset? Or is it a service provider somewhere else within the value chain?
This dynamic can get complicated, and aviation software companies need to have good relationships with OEMS and throughout the ecosystem to ensure that they can navigate accordingly. If you don’t have scale, and you don’t have those relationships, you’re at a material disadvantage.
Published July 2020