Third Coast Aviation
Third Coast Aviation Inc. Professional Flight Training.
Raised to Date: Raised: $0
Rolling Commitments ($USD)
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As of May 6, 2019, Third Coast Aviation has raised $2,100 of a minimum target of $10,000.
Today we are diving in and reviewing the pros and cons of Third Coast Aviation Inc.
Third Coast Aviation is a flight training organization that operates out of Texas Gulf Coast Regional Airport in Houston, Texas. It is a Part 61 training academy that offers more flexible and CFI-centric training programs as compared to the stricter curriculum followed by Part 141 flight schools.
For the layman, Third Coast Aviation offers a comprehensive flight training program from the students who are on their way to transition to a career as a pilot. The idea itself has merit: According to CAE Inc., 85,000 new pilots will be needed in the U.S. alone over the next 10 years.
The flight training services are provided in the form of a series of licenses, including Private Pilot’s License, Instrument Rating, Commercial Pilot’s License, Certified Flight Instructor, Commercial Pilot Multi-Engine Rating, and Airline Transport Pilot.
Additionally, Third Coast Aviation also provides training aircraft rentals, as well as aircraft acquisition, disposition, and management services. For these services, the company charges a percentage of the aircraft valuation as its fee.
Despite being a good business, Third Coast Aviation’s merits as an early-stage investment has a number of hurdles.
The business itself is small, with limited geographical reach. Scaling is a game of inches – not yards.
Also, the company is raising funds against equity when all it needs is working capital. The choice of security type does not look compatible with the current requirements of the company, in our estimation. Put another way – why not simply raise capital through a revenue-share arrangement? Such moves have been made before in the crowdfunding space.
Below we assess the drawbacks of Third Coast Aviation in further detail so that investors have complete information before investing.
Third Coast Aviation is based out of the historic Ellington Field and Texas Gulf Coast Regional Airport. It is in the process of building a network of Part 61 flight academies in the Houston-The Woodlands-Sugar Land metropolitan area.
Despite the expansion plans, the target market remains very small and restricted. The primary market is only within 35 miles of its locations where the potential client base, according to statistics, is restricted to only 1,080 student pilots, 2,369 private pilots, and 1,150 commercial pilots. And, of course, we cannot ignore the presence of a good number of competing flight schools in the same geographic area.
Therefore, even if the company grows to its maximum capacity, the market will always remain narrow, limiting revenues, profits, and growth.
Third Coast Aviation reported a monthly profit of $8,000 in December 2018. Management is expecting to reach a monthly profit of $55,000 within the next three years.
Considering the narrow market and limited scope of growth, the profit target seems easier said than done in our estimation. There is no concrete plan as to how the company will reach the set target. Even if they do hit their targets, that is about $600K in profits on a $3M valuation today.
5X profits on a small service business is high and at this time they are valuing the company at about 30X profits, which is well out of reason. The upside potential for investors over the next 3 to 5 years is very low. The upside here is that with profitability already achieved, the odds of going under are minimized.
Lack of Exit Strategy
As discussed, in addition to the fundamental risks associated with investing in such an enterprise, Third Coast Aviation has a few other red flags.
There is no specific exit strategy for investors. At a valuation of $3 million, and using a 4.5 times multiple on EBITDA, the company looks overvalued. Early-stage investors are naturally looking for sizable returns, amounting to multiples of their initial investment: It’s hard to imagine that happening in this instance.
Incompatible Choice of Security
Third Coast Aviation is raising equity crowdfunding. It is offering its common stock in exchange for the investment. Usually, in the world of crowdfunding, equity crowdfunding is done by companies with considerable upsides that Third Coast Aviation clearly lacks.
At the same time, the purpose of raising funds is to get working capital for the company. In this case, a revenue share or a payback arrangement could have worked much better instead of offering common stock of the company.
Unproductive Use of Proceeds
According to the information provided by the company in its offering document, it will use 94% of the minimum raise, i.e., $10,000 to employ an independent CPA to meet the needs of its future capital raises. It will also engage other legal professionals.
The concern is that the use of proceeds mentioned above does not seem to add much value to the company, shareholders, or investors. The proceeds of the crowdfunding, at least the minimum raise, will not benefit investors by means of growth of the company.
Only if Third Coast Aviation manages to raise the maximum target of $107,000, the proceeds will be used for buying aircraft, marketing, and working capital purposes.
Due to its restricted market, limited regional growth potential we are assigning Third Coast Aviation the rating of Underweight.
The company expects to grow in the next three years, with profits rising from $8,000 per month to a whopping $55,000 month.
However, the target market and the scope of growth depict a completely different story. Even in its maximum capacity, Third Coast Aviation can only cater to a limited geographical market and target audience.
The choice of security (versus alternatives such as a simple revenue-share or debt instrument) and the lack of an exit strategy also leave much to be desired.
In such circumstances, investors are subject to more risks than usual crowdfunding investments. Therefore, investors must exercise extreme due diligence and caution before deciding to invest in Third Coast Aviation.
If you have any questions regarding the underweight rating of Third Coast Aviation, you can reach us at firstname.lastname@example.org.