Sky Harbour (SKYH) - Uncovering an Ultrawide Moat in Aviation Infrastructure
Capitalizing on a Fast-Growing Niche in a Specialty Real Estate
Summary:
Sky Harbour is a rapidly growing aviation infrastructure company that constructs and operates jet hangars for private and business clients with small to mid-sized aircraft, typically under a 28-foot tail height. The company focuses on development in high-growth markets characterized by significant aircraft populations and a scarcity of hangar space.
To establish its facilities, Sky Harbour leases land from airports, navigating a multi-year approval and negotiation process with airport authorities and municipalities. Their fully enclosed hangars offer protection and security for aircraft, supplemented by a wide range of amenities, such as lounges, restrooms, low-cost fuel, towing, and maintenance services.
Sky Harbour has an aggressive growth strategy aimed at becoming a nationwide provider of premium home base solutions within the next 3 to 6 years. The company plans to operate approximately 21 campuses in the most vibrant metropolitan areas within the next 3 years at the remaining cost of ~$630mm (as of 3Q 2024). The mid-term goal is to reach 50 campuses in subsequent years. We project the additional 30 campuses to cost ~$1,406mm.
We expect, the company to achieve a ~15% net operating income (NOI) yield on its near-term property portfolio. This is based on 14 percentage points (pp) of company guidance, plus an additional 1 pp from lease costs optimization. This return is relatively high compared to single-family homes, with ~5-6%, and multifamily, which average ~7-8%. Other real estate types, including commercial and industrial properties, typically offer returns ranging from 5% to 9%.
Sky Harbour does not have any direct and scaled competitors. The nearest competition, Fixed-Base Operators (FBOs), has significant weaknesses compared to Sky Harbour. The company offers long-term leases, superior amenities, and a wider range of services. In contrast, FBOs typically provide shared terminals and lack enclosed hangars, as well as storage for aircraft exceeding 24 feet in tail height, which is the fastest-growing jet category. FBOs often depend on fuel sales and cater primarily to lower-end customers seeking more temporary storage solutions.
The company aims to leverage the increasing constraints on hangar supply, driven by the growing demand for larger aircraft and the limited availability of developable land at key airports. The business jet market is experiencing significant growth. Between 2010 and 2020, the cumulative square footage of the U.S. business aviation fleet increased by 42%, with a 70% increase in the square footage of larger private jets. This creates a supply-demand imbalance in the hangar market, making Sky Harbour an attractive option as the sole scaled provider of these solutions.
Now, let’s take a look at how attractively valued is Sky Harbour.