Business Overview and History
Sky Harbour Group Corporation (SKYH) is an aviation infrastructure company pioneering the development of the first nationwide network of dedicated Home-Basing campuses for business aircraft. Through its innovative approach, Sky Harbour is revolutionizing the way private jet owners and operators manage their aircraft, offering a comprehensive suite of services that cater to their unique needs.
Founded in 2020, Sky Harbour Group Corporation was established as an aviation infrastructure development company with the goal of addressing the growing imbalance between the supply and demand for private jet storage and services across the United States. The company recognized the increasing size and complexity of the business aviation fleet, with newer aircraft requiring more square footage and advanced handling capabilities that traditional fixed-base operators (FBOs) were often ill-equipped to accommodate.
Sky Harbour's business model is centered around securing long-term ground leases at strategic airports, and then developing state-of-the-art hangar campuses that provide exclusive, private hangars and a full range of concierge-level services tailored to the needs of home-based aircraft owners. By focusing on key markets with significant aircraft populations and high hangar demand, the company aims to capture this underserved segment of the private aviation industry.
In 2021, Sky Harbour achieved a significant milestone by raising $166.3 million through the issuance of Senior Special Facility Revenue Bonds. This financing was used to fund the construction of its initial hangar campuses at five airports: Sugar Land Regional Airport, Miami-Opa Locka Executive Airport, Nashville International Airport, Centennial Airport, and Phoenix Deer Valley Airport. This marked the beginning of the company's execution of its strategy to build a nationwide network of home basing hangar campuses.
The years 2022 and 2023 presented challenges for Sky Harbour due to the impacts of the COVID-19 pandemic and rising construction costs. The company faced delays and increased expenses related to supply chain issues and labor shortages, which affected construction timelines and budgets. However, Sky Harbour demonstrated resilience in navigating these headwinds and continued to make progress on its development projects.
By the end of 2023, Sky Harbour had successfully completed construction on its hangar campuses in Nashville, Miami, and Houston, and had begun operations at these locations. The company also expanded its portfolio by securing ground leases at several additional airports, laying the foundation for future growth. Despite the challenges faced, Sky Harbour positioned itself for continued expansion of its unique home basing model for private aircraft owners.
Since its inception, Sky Harbour has executed a methodical expansion strategy, securing ground leases at 23 airports across the United States by the end of 2025, with plans to continue growing its nationwide footprint in the coming years. The company's portfolio includes major markets such as Dallas, Denver, Miami, Nashville, and the San Francisco Bay Area, among others.
Financials and Operating Performance
Sky Harbour's financial performance has been marked by strong revenue growth and improving operational efficiency, despite the challenges posed by the COVID-19 pandemic and broader macroeconomic pressures.
For the fiscal year ended December 31, 2023, the company reported total revenue of $7.58 million, a significant increase from the $1.84 million generated in the prior year. This growth was driven by the commencement of operations at several new hangar campuses, as well as higher occupancy rates and rental rates at the company's established facilities.
Net loss for the 2023 fiscal year was $16.18 million, with the company's profitability impacted by increased operating expenses related to ground lease payments, depreciation, and other start-up costs associated with its expanding portfolio. However, Sky Harbour's management team remains focused on driving operational leverage and achieving profitability, with the company's Chief Financial Officer projecting the business to reach breakeven on a consolidated basis by the end of 2025.
For the nine months ended September 30, 2024, Sky Harbour reported total revenues of $10.12 million, representing a 90% increase compared to the same period in 2023. This growth was primarily driven by the commencement of operations at the San José Mineta International Airport (SJC) hangar campus as well as increased occupancy at the Nashville International Airport (BNA) and Miami-Opa Locka Executive Airport (OPF) facilities. Rental revenue, which makes up the majority of the company's top line, grew by $4.78 million or 90% year-over-year.
However, the company continued to generate operating losses, reporting a $15.05 million operating loss for the nine-month period. This was due to higher operating expenses, including a $3.92 million or 76% increase in ground lease costs and a $3.31 million or 30% rise in general and administrative expenses, largely related to increased personnel costs and equity-based compensation.
Additionally, Sky Harbour recorded a $23.93 million unrealized loss on the revaluation of its outstanding warrants, which drove a $22.62 million increase in total other expenses compared to the prior year period. As a result, the company reported a net loss of $37.73 million for the first nine months of 2024.
In the most recent quarter, Sky Harbour reported revenue of $4.10 million, representing a 64% increase compared to the same quarter last year. This growth was driven by the commencement of operations at the San Jose campus and increased occupancy at the BNA and OPF hangar campuses, partially offset by non-recurring revenue adjustments in the prior year period. The net loss for the quarter was $18.55 million.
For the most recent fiscal year, Sky Harbour reported annual operating cash flow of -$7.74 million and annual free cash flow of -$63.88 million. The company currently only operates in the United States.
Liquidity
As of September 30, 2024, Sky Harbour reported cash and investments totaling $110.37 million, providing ample liquidity to fund its ongoing development projects and future growth initiatives. This included $74.17 million in combined cash and restricted cash. The company has also secured $166.3 million in long-term financing through a private activity bond offering, which it has used to construct its initial hangar campuses.
Sky Harbour's financial position is further characterized by a debt-to-equity ratio of 7.06, cash and cash equivalents of $60.26 million, and both current and quick ratios of 6.34. The company has not disclosed any available credit lines beyond the $166.3 million in private activity bonds issued.
Recent Developments and Outlook
In 2024, Sky Harbour continued to execute on its strategic expansion plan, announcing the development of new hangar campuses at several key airports, including Salt Lake City International Airport, Trenton-Mercer Airport, and Camarillo Airport serving the greater Los Angeles metropolitan area.
The company also made significant progress on its existing development projects, with the completion of its hangar campuses at Deer Valley Airport in Phoenix, Centennial Airport in Denver, and Addison Airport in Dallas scheduled for the first quarter of 2025. These new facilities are expected to drive further revenue growth and operational improvement as they achieve full occupancy.
As of September 30, 2024, Sky Harbour had 30 hangars spanning 416,700 square feet of rentable space across 7 completed hangar campuses, with an additional 60 hangars totaling 1.9 million square feet in the development pipeline at various stages. The company's completed hangar campuses, located at Sugar Land Regional Airport (SGR), Nashville International Airport (BNA), Miami-Opa Locka Executive Airport (OPF), and San José Mineta International Airport (SJC), had a weighted average occupancy rate of 97% as of September 30, 2024.
Sky Harbour's development pipeline includes projects in key markets such as the Dallas area (Addison Airport), the Hartford area (Bradley International Airport), the Denver area (Centennial Airport), the Chicago area (Chicago Executive Airport), the New York area (Hudson Valley Regional Airport), the Miami area (OPF Phase II), the Orlando area (Orlando Executive Airport), the Phoenix area (Phoenix Deer Valley Airport), the Salt Lake City area (Salt Lake City International Airport), the Houston area (Sugar Land Regional Airport), and the Washington D.C. area (Washington Dulles International Airport). The company estimates the total construction costs for these development projects will range between $561 million to $627 million.
Looking ahead, Sky Harbour's management team has outlined an ambitious growth strategy, revising their estimate of new sites from 8 to 9 by the end of 2025, which would take them to a total of 23 airports by the end of 2025. The company expects revenues to continue to grow as they exceed 100% occupancy, achieve higher rental rates on renewals, and enter into other types of arrangements to monetize their various assets, including their airports.
Sky Harbour anticipates being more than 3x debt service coverage in terms of their cash flow available for debt service and their debt service once stabilized, which they expect to be about 2-3 years from now when their projects are fully constructed and cash flowing.
Risks and Challenges
While Sky Harbour's growth prospects remain promising, the company faces several risks and challenges that investors should be aware of. These include:
1. Execution risk: The successful and timely completion of the company's development pipeline is crucial to its long-term success. Delays or cost overruns could impact Sky Harbour's financial performance and ability to secure new ground leases.
2. Occupancy and tenant retention: The company's revenue and profitability are heavily dependent on maintaining high occupancy rates and the ability to renew tenant leases at favorable terms. Any disruptions to demand or changes in the competitive landscape could negatively affect Sky Harbour's financial results.
3. Regulatory and legislative changes: The aviation industry is subject to a complex regulatory environment, and any changes to policies governing airport operations, zoning, or environmental regulations could impact the company's business model and growth prospects.
4. Macroeconomic conditions: Sky Harbour's performance is tied to the overall health of the business aviation industry, which can be sensitive to broader economic trends, such as changes in fuel prices, interest rates, and the availability of financing for aircraft purchases.
Despite these risks, Sky Harbour's management team has demonstrated a strong track record of navigating industry challenges and executing on its strategic objectives. The company's unique business model, coupled with its growing portfolio of high-quality hangar campuses, positions it well to capitalize on the long-term growth opportunities in the private aviation sector.
Industry Trends
The business aviation industry has experienced significant growth, with the cumulative square footage of the business aircraft fleet in the United States increasing 50% between 2010 and 2021. Additionally, over that same period, there was an 81% increase in the square footage of larger private jets. This growth has led to increased demand for hangar space that Sky Harbour is aiming to capture with its nationwide network of home basing hangar campuses.
Conclusion
Sky Harbour Group Corporation (SKYH) is at the forefront of redefining the business aviation infrastructure landscape in the United States. Through its innovative Home-Basing model, the company is providing private jet owners and operators with a comprehensive suite of services and amenities that cater to their specific needs, while also capturing a significant and underserved market opportunity.
As Sky Harbour continues to execute on its ambitious growth strategy, expanding its nationwide network of state-of-the-art hangar campuses, the company is well-positioned to solidify its position as a leading player in the private aviation industry. While the company faces certain risks and challenges, its experienced management team, strong financial position, and growing portfolio of high-quality assets suggest a promising future for Sky Harbour and its shareholders.