Sky Harbour Group Corporation (SKYH) is an aviation infrastructure development company that is pioneering the creation of the first nationwide network of home basing hangar campuses for business aircraft across the United States. The company's mission is to provide private aircraft owners and operators with a superior home basing experience compared to the traditional fixed-base operator (FBO) model.
Company History and Overview Sky Harbour Group Corporation was founded in 2020 as an aviation infrastructure development company that develops, leases, and manages general aviation hangars for business aircraft across the United States. The company was organized as an umbrella partnership-C corporation (Up-C) structure, with Sky Harbour Group Corporation holding equity interests in the main operating subsidiary, Sky Harbour LLC.
In 2021, Sky Harbour formed a new wholly-owned subsidiary, Sky Harbour Capital LLC, which issued $166.3 million in Senior Special Facility Revenue Bonds to finance the construction of aviation facilities at several airport locations. This provided the initial capital to develop the company's first hangar campuses.
Over the next couple years, Sky Harbour faced some early challenges. In 2022, the company experienced construction delays and increased costs due to factors such as the COVID-19 pandemic and supply chain disruptions. This required the company to inject additional equity capital into the construction projects to cover the funding gap.
In 2023, the company encountered design flaws in the hangar prototypes being used for its Denver and Phoenix development projects. This required a remediation plan and additional construction costs estimated between $26-$28 million to address the issues and meet local building codes. To fund this, Sky Harbour contributed $27 million of its own corporate cash to the construction fund.
Despite these early obstacles, Sky Harbour was able to open its first completed hangar campuses in 2022 and 2023 at locations such as Nashville, Miami, and San Jose. The company focused on leasing these new facilities and optimizing the operations, which allowed it to exceed initial revenue projections through higher than expected occupancy and rental rates. This provided the company a solid foundation to build upon as it continued expanding its nationwide network of home basing hangar campuses for business aviation.
To capitalize on this market opportunity, Sky Harbour has developed a scalable, real estate-centric business model focused on leasing land at airports to construct and manage state-of-the-art hangar campuses. These campuses feature exclusive private hangars and a suite of dedicated services tailored specifically for home-based, as opposed to transient, aircraft. The company's prototype hangar design, known as the Sky Harbour 37, can accommodate up to 70,000 square feet of aircraft in a 37,000 square foot hangar, allowing for highly efficient utilization of space.
As of the latest reporting period, Sky Harbour has executed ground leases at 14 airports across the United States, with plans to expand to a total of 23 airports by the end of 2025. The company's existing campuses are located at airports serving major metropolitan areas such as Dallas, Miami, Nashville, and San Jose, California. Remarkably, Sky Harbour has exceeded its initial "Sky Harbour Equivalent Rent" projections, which represent the floor for rental rates, at every single one of its operational campuses to date.
Financial Performance and Liquidity Sky Harbour's financial performance has been characterized by rapid revenue growth, driven by the ramp-up of its existing campuses and the addition of new facilities. For the nine months ended September 30, 2024, the company reported revenue of $10.12 million, a 90% increase compared to the same period in the prior year. This growth was primarily attributable to the commencement of operations at the San Jose campus and increased occupancy at the company's Miami and Nashville campuses.
While Sky Harbour's operating expenses have also increased, reflecting the expansion of its platform, the company has maintained a disciplined approach to controlling its selling, general, and administrative (SG&A) costs. For the nine-month period, SG&A expenses represented 14.0% of total revenue, down from 15.8% in the prior-year period.
The company's liquidity position remains robust, with $110.37 million in cash, restricted cash, investments, and restricted investments as of September 30, 2024. This includes $87.3 million held at the trustee level for the company's Series 2021 Bonds, which are being used to fund the construction of its current development projects. Sky Harbour also recently completed the initial closing of a $37.6 million private placement, with an additional $37.6 million expected to close in December 2024.
For the most recent fiscal year (2023), Sky Harbour reported revenue of $7.58 million, a net loss of $16.18 million, operating cash flow of -$7.74 million, and free cash flow of -$63.88 million. In the most recent quarter (Q3 2024), the company's revenue reached $4.10 million, representing a 64% year-over-year increase. The net loss for Q3 2024 was $18.55 million, with operating cash flow of -$1.16 million and free cash flow of $17.45 million.
It's worth noting that the Q3 2024 net loss of $16 million included a $16 million non-cash expense related to the change in fair value of warrants, accounting for 77% of the total loss. The increase in revenue was primarily due to the commencement of operations at the San Jose campus and increased occupancy at the BNA and OPF campuses, partially offset by net non-recurring revenue adjustments in Q3 2023.
Sky Harbour's liquidity position is strong, with a debt-to-equity ratio of 0, a current ratio of 6.34, and a quick ratio of 6.34. The company has not disclosed any available credit lines.
Runway for Growth and Operational Execution Looking ahead, Sky Harbour has an extensive pipeline of development projects, with 14 new campuses scheduled to commence construction in 2025 and an additional 6 campuses targeted for groundbreaking in 2026. This accelerated growth plan reflects the company's ability to identify and secure high-quality airport locations, as well as its expertise in navigating the complexities of the development process.
A key focus for the company will be continuing to drive operational efficiencies and cost savings, particularly through the vertical integration of its hangar manufacturing subsidiary, RapidBuilt. By leveraging RapidBuilt's capabilities, Sky Harbour aims to reduce construction timelines and costs, further solidifying its competitive advantage.
Additionally, the company is placing increased emphasis on catering to the specific needs of key stakeholders within its tenant base, including pilots, maintenance professionals, schedulers, and dispatchers. By delivering a comprehensive suite of tailored services, Sky Harbour believes it can enhance the home-basing experience and drive even stronger tenant retention and loyalty.
As of September 30, 2024, Sky Harbour had 30 hangars totaling 416,700 square feet completed and operational across 7 airport campuses. The company also has an additional 60 hangars totaling 1.9 million square feet in various stages of development or pre-development at 14 different airport locations. Key projects under construction include ADS Phase I, APA Phase I, DVT Phase I, and OPF Phase II, while several other projects such as ADS Phase II, BDL Phase I, IAD Phase I, and SLC are in the pre-development stage.
Sky Harbour has revised its estimate of new sites from 8 to 9 by the end of 2025, which would take their total airport count to 23 by the end of 2025. The company expects revenues to continue growing even if they don't open any new campuses, as they exceed 100% occupancy, achieve higher rental rates on renewals, and enter into other types of arrangements to monetize their various assets.
Industry Trends and Market Opportunity The business aviation industry has shown strong growth trends, with the business aviation fleet in the US growing by 28 million square feet in the 10 years prior to the pandemic. Hangar supply has lagged dramatically behind this growth, creating a significant market opportunity for Sky Harbour. Looking forward, the company expects 8,500 new business jet deliveries worth over $275 billion between 2024-2033, further increasing demand for hangar space.
Financial Outlook and Guidance Sky Harbour has provided updated guidance on its financial outlook. The company now expects to be at breakeven on a consolidated basis by Q3 2025, driven by the opening of three new campuses and the leasing of those facilities in the spring and summer of 2025. Furthermore, Sky Harbour projects that it will achieve more than 3x debt service coverage in terms of cash flow available for debt service once its operations are stabilized, which is anticipated to occur in about 2-3 years.
Risks and Challenges While Sky Harbour's growth trajectory appears promising, the company faces several risks and challenges that investors should consider. These include potential delays or cost overruns in the construction of its development projects, the ability to maintain high occupancy rates and rental rates at its campuses, and the potential for increased competition from existing FBOs or new market entrants.
The company is also subject to the broader economic conditions that can impact the business aviation industry, such as changes in fuel prices, aircraft deliveries, and the overall health of the global economy. Any significant disruptions or downturns in these areas could adversely affect Sky Harbour's financial performance.
Conclusion Sky Harbour Group Corporation has established itself as a trailblazer in the aviation infrastructure space, leveraging its innovative business model and operational expertise to create a differentiated offering for private aircraft owners and operators. With a robust development pipeline, strong liquidity position, and a laser-focus on driving operational efficiencies, the company appears well-positioned to capitalize on the growing demand for home-basing solutions in the business aviation market. While risks and challenges remain, Sky Harbour's unique value proposition and execution track record make it a compelling investment opportunity for those with a long-term horizon.