What is an air charter operator worth?

Revenue alone does not show whether a charter business could keep operating after the owner leaves. Some things that look like assets on a balance sheet may depend on licence conditions, on individual people, or on arrangements that could end on a change of ownership. This guide lists those things as questions, for a buyer or an owner to put before a deal is priced. It does not give a price, and nothing here is a valuation. A figure for a particular operator needs a qualified valuator who has seen its records.

Start with the licence

Part II of the Canada Transportation Act says no person may operate an air service unless the person holds a licence issued under that Part, holds a Canadian aviation document and has the prescribed liability insurance coverage. Section 58 adds that a licence for the operation of an air service is not transferable. A buyer therefore cannot take over the licence by transfer. To keep operating under the existing licence it would have to acquire the company that holds it, so ask about that company’s standing with the regulator; the alternative is for the buyer to apply for a licence of its own under section 61. Whether a particular charter flight counts as an “air service” under the Act’s definition, or falls within the exclusions in section 56, is a question for the operator’s counsel.

Why ownership structure matters

Section 61 requires an applicant for a domestic licence to be a Canadian, unless the Minister grants an exemption under section 62, and the Act defines a corporation as Canadian only if it is incorporated or formed under the laws of Canada or a province, is controlled in fact by Canadians and meets set limits on voting interests held by non-Canadians. Under section 63 the Agency must suspend or cancel a domestic licence where it determines that the licensee ceases to meet that requirement. So whether the buyer’s ownership meets the definition bears on whether the company can keep its licence after closing. Ask the seller how past investors and lenders were checked against the definition, and whether any shareholder agreement gives a non-Canadian rights over how the company is run.

Aircraft: condition and how each is held

Ask for the maintenance records for each airframe and the schedule of work still to come. If a major overhaul falls soon after closing, ask whose cost it is and whether the price reflects it. Ask also whether any aircraft are leased in or provided with a crew by another person. Section 60 sets conditions on providing an aircraft with a flight crew to a licensee: compliance with the Agency’s regulations on disclosure of the identity of the operator and, where prescribed, Agency approval. An arrangement of that kind is something to understand before assigning the aircraft any value.

Pilots and the owner’s own flying

Ask which credentials each pilot holds and whether they belong to the pilot or to the company. Ask how many pilots are current on the aircraft the operator flies, what it would cost to replace one, and whether the owner personally flies a share of the schedule. If the owner does, ask how that capacity will be replaced, and whether the price allows for it. Employees of an air operator may also be covered by federal labour law, since the Canada Labour Code includes aircraft and a line of air transportation in its definition of a federal work, undertaking or business, and Part I of that Code applies in respect of employees employed on or in connection with the operation of any such work, undertaking or business. Check which regime applies and whether a collective agreement exists.

Recasting earnings for an owner who flies

Ask whether the seller’s earnings have been recast to remove the owner’s pay and personal expenses and show what a hired manager would cost. If the owner is also the chief pilot, ask whether the pay for flying is separated from the pay for managing; without that split, recast earnings could overstate what a non-flying owner would take home. Ask your accountant how the recast was prepared and which adjustments the seller has supported with records. Ask also whether any adjustment depends on a licence condition, an insurance term or an aircraft arrangement that could change when ownership does.

• Repeat clients under contract or standing arrangements, as opposed to one-off bookings.
• Hangar and base-airport arrangements, and whether the lease or access agreement survives a change of control.
• Audit and enforcement history with the regulator.
• Maintenance and airworthiness records for every aircraft, kept complete and up to date.
• Dependence on the owner: how much flying, selling and client contact depends on one person.