Sky Harbour Targets EBITDA Inflection as Private Hangar Network Expands

Key Points

• Sky Harbour is expanding its private hangar network to meet rising demand from a growing fleet of larger business aircraft. It has eight operating campuses, 23 announced ground leases, four campuses under construction and 11 in pre-development.
• The company’s ground-lease model and tax-exempt financing support targeted property-level NOI yields in the low- to mid-teens, while in-house design, manufacturing and contracting are intended to reduce development costs.
• Management expects Sky Harbour to become EBITDA positive by year-end and remain profitable into 2027 as new projects are completed and leased. At Miami Opa-locka, newer leases averaged about $51 per rentable square foot, above the first phase’s roughly $41 average.

Sky Harbour Group NYSE: SKYH is expanding its network of business aviation hangar campuses as it seeks to address what Treasurer Tim Herr described as a shortage of purpose-built hangar space for a growing fleet of larger private aircraft.

Speaking at the Noble Capital Markets Virtual Equity Conference, Herr said Sky Harbour operates as an aviation infrastructure and real estate developer. The company secures airport land through long-term ground leases, designs and constructs hangars and office space, and leases those facilities to business jet and general aviation users. Revenue primarily comes from rent, supplemented by aircraft fuel sales and related aviation services.

Ground-Lease Model Supports Development Financing

Herr said Sky Harbour generally obtains airport land through ground leases that can extend to 50 years, rather than purchasing the land outright. Airports are typically owned by counties or municipalities, he said. The arrangement reduces upfront land-acquisition costs, though the company incurs ongoing lease payments as operating expenses.

He also said the public ownership structure enables Sky Harbour to use tax-exempt private activity bonds to finance construction. Under the arrangement, the airport is considered the beneficial owner of the improvements for tax purposes.

The company targets property-level net operating income yields in the low- to mid-teens, according to Herr. He said lower-cost tax-exempt financing can support higher returns on equity than the property-level yields alone suggest.

Sky Harbour’s principal tenants include high-net-worth individuals, corporate aircraft fleets and other general aviation users such as charter operators and government agencies. Herr cited Chevron’s aircraft operations in Sugar Land, Texas, and the Tennessee Bureau of Investigation in Nashville as examples of customers.

Focus on Dedicated Hangar Space

Herr characterized Sky Harbour as a “home base operator” rather than a traditional fixed-base operator, or FBO. Unlike FBOs, which serve both based and transient aircraft and rely heavily on fuel sales, Sky Harbour serves its resident tenants and offers dedicated aircraft parking and hangar space.

He said the model produces fewer aircraft movements than a traditional FBO and is intended to provide a quieter environment, along with privacy and security for aircraft owners. In a fully private model, one tenant rents an entire hangar. In the company’s semi-private model, multiple aircraft owners can share a hangar while retaining guaranteed indoor parking positions.

That semi-private model can create economic occupancy above 100% at certain facilities, Herr said. By arranging aircraft efficiently within a larger hangar, the company can lease space to multiple aircraft owners in configurations that effectively use overlapping areas of the building.

Herr said the business aviation fleet has expanded as the number of aircraft has grown and the average aircraft has become larger. He said the supply of available hangar space has not kept pace, partly because airports have limited room to expand and because traditional FBOs have historically focused more on fuel sales than on building new hangars.

23 Ground Leases, With Eight Campuses Operating

Sky Harbour currently has eight operating campuses and 23 announced ground leases, Herr said. The operating locations range from Miami Opa-locka to San Jose International Airport. Four additional campuses are under construction, including projects in Orlando, the Hartford-area Bradley International Airport and Salt Lake City, while 11 others are in various pre-development stages.

The company recently announced a ground lease at Van Nuys Airport in Southern California, which Herr described as one of the country’s most active business aviation airports.

Sky Harbour has also brought more of its development work in-house. Herr said it now performs internal design and architecture work, manufactures metal building components through Stratus Building Systems in Texas, and performs general contracting through Ascend Aviation Services. He said those moves have helped lower development costs.

Construction hard costs were about $242 per square foot, according to Herr, while soft costs bring total development costs closer to $300 per square foot. He said maintaining hard costs at roughly $242 per square foot over the next several years would be a positive outcome given broader construction-cost pressures.

Management Expects EBITDA Inflection

Herr said the company has reached a scale at which its operating campuses are covering corporate costs. He said Sky Harbour expects to become EBITDA positive by the end of the year and remain positive into 2027 as projects now under construction are completed and leased.

For its first portfolio of six airports, Sky Harbour issued long-term debt in 2021 with a 33-year final maturity, a 25-year average life and a 4.18% interest rate, Herr said. Its second development portfolio is being funded through a five-year tax-exempt construction facility with JPMorgan, fixed through a swap at 4.73%, together with five-year subordinated debt issued at 6%.

Herr said those two sources make up roughly 90% of the capital stack for ongoing construction, with the remaining 10% funded through equity. He placed the blended cost of debt capital for the portfolio at about 5.5%.

At Miami Opa-locka, Sky Harbour completed the second phase of its campus earlier this year. Herr said the project nearly doubled the location’s square footage without doubling operating expenses, because the site had already been staffed for the first phase.

Initial phase-one leases at Opa-locka were signed at $32.50 per rentable square foot, while the final phase-one leases reached $45 per square foot, producing a phase-one average of about $41 per square foot, Herr said. Phase two has averaged $51 per square foot, supported by demand and a waitlist built during the first phase. He said the company expected to complete lease-up of the second phase within the next month or two.

About Sky Harbour Group (NYSE:SKYH)

Sky Harbour Group Corporation develops and operates aviation infrastructure for business and general aviation. The company focuses on building and managing private hangar campuses designed to provide secure aircraft storage and related facilities for business aircraft owners and operators.

Its campuses typically offer dedicated aircraft hangars, office and support space, and other aviation-oriented amenities. Sky Harbour's business model is centered on developing properties at strategically located airports and leasing or providing access to the facilities for private aviation customers.

The company is building a network of aviation campuses across the United States, with a focus on serving major metropolitan areas and regional business aviation markets.

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