When Thomas Flohr's VistaJet Group signed a deal to buy 56 Bombardier Inc. luxury jets and took options on 86 more in 2012, the Canadian plane maker called it a "historic" order and the single biggest business aircraft sale it had ever made.
Five years on, Mr. Flohr is trying to make a bit of history of his own.
This month, he secured a new $150-million (U.S.) cash investment in his closely held company from private-equity firm Rhône Capital in an agreement that values VistaJet at roughly $2.6-billion. It is the highest valuation ever for a private aviation company, according to the BBC, laying down a marker in an industry many players say is in bad need of consolidation.
For VistaJet, one of Bombardier's largest fleet customers, Rhône's investment represents a vote of confidence in its business, which has taken 13 years to reach a desired scale. More broadly, it highlights the belief by some investors that the winners in the private-jet transport market will be companies that can offer consistent, high-end service in every corner of the world.
"VistaJet is trying to develop a global charter brand and I think they're doing a good job at that," said Rolland Vincent, an aerospace consultant in Plano, Tex. Still, the company and its biggest rivals, such as Tag Aviation, have a way to go to match the kind of truly planet-wide service seen in other industries such as computing, he said.
After the last of the new Bombardier Global jets of the 2012 order is delivered this fall, Malta-based VistaJet will hit pause on new aircraft purchases and turn its full attention to increasing its bookings as it hits the end of its current investment cycle. Management believes its all-Bombardier fleet of 72 jets can support nearly double the amount of hours it is currently flying.
The company is also eyeing acquisitions.
"We want to be ready in case opportunities open up in the marketplace," Ian Moore, VistaJet chief commercial officer, said in an interview on Friday. He declined to provide details about any specific targets but said the company wouldn't necessarily buy an operator.
Mr. Flohr founded VistaJet more than a decade ago with the goal of disrupting the traditional aviation world and providing an alternative to private and fractional ownership. The company sells multiyear subscriptions offering wealthy individuals and corporations a set amount of flight hours on a fleet of aircraft that are all identically branded and appointed. It also offers an on-demand charter service.
Building the infrastructure required to support guaranteed availability for customers has been a challenge. The company has spent more than $2-billion over the past three years alone growing and renewing its aircraft fleet. And that capital intensity means it has become highly leveraged, raising questions about its viability.
Credit rating agencies have sounded the alarm bells on VistaJet's finances.
Standard & Poor's said in a May report that despite improving revenue, the company has failed so far to reach the critical customer base necessary to operate its fleet network efficiently. It said VistaJet's liquidity has deteriorated to the point where it needs an equity injection from an outside party or material modifications to its financial leasing agreements to meet its debt obligations. It downgraded its corporate debt rating to CCC+ from B-, with a negative outlook.
Fitch Ratings said in a report published Friday that the Rhône investment substantially improves VistaJet's financial flexibility and liquidity position, and it reaffirmed its B- long-term debt rating with a stable outlook. But it said the company will need to continue to refinance existing debt amortization until it is able to generate enough internal cash flow to repay the debt as it matures.
VistaJet has a heavy debt amortization profile, with more than $200-million of debt principal repayments every year from 2017 to 2019, "substantially higher" than the $126-million a year in free cash Fitch believes the transport provider will generate over the same time.
VistaJet largely rejects the credit-agency conclusions on grounds that they are based on past performance and don't fully appreciate the uniqueness of its business model, Mr. Moore said. He said the company has always said that once its investment cycle ends, it will start trimming debt with cash from operations.
"We're not in panic mode," Mr. Moore said, adding the company always had a plan for dealing with its debt. "We didn't agree that we needed this equity, but it's great to have it. … We now have a very strong equity position."
The aerospace industry is undergoing a "massive shift" away from ownership of aircraft, Mr. Flohr told Bloomberg TV, which he said would benefit his firm. "Companies just don't want a $50-million jet any more on their balance sheet."
While that might seem like a negative development for plane makers such as Bombardier, which sell to fleet customers such as VistaJet as well as private individuals and companies, the Canadian manufacturer says it isn't, because demand for private plane travel continues unabated.
Bombardier has faced difficulties in other areas – delays in the production of its C Series commercial aircraft, ethical concerns in its transportation division that were raised when an employee in its Swedish office was charged with bribery – but the company's private jet business has been something of a bright spot.
"For us, the usage type isn't as important in our forecast as the fact that the overall market will continue to grow and drive replacement demand," Bombardier spokesman Mark Masluch said. "We only stand to benefit."