Sky Harbour Group Corp 10-K

ITEM 1. BUSINESS Overview We are an aviation infrastructure development company building the first nationwide network of home basing hangar campuses for business aircraft. We develop, lease and manage general aviation hangars across the United States, targeting airfields in markets with significant based aircraft populations and high hangar demand. Our home basing hangar campuses feature private and semi-private hangars and a full suite of dedicated services specifically optimized for home based, versus transient, aircraft. The physical footprint of the U.S. business aviation fleet grew by almost 36 million square feet in the past fourteen years, with hangar supply lagging dramatically, especially in key growth markets. As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require taller tail clearances and more square footage of hangar space and the pace of new hangar construction has lagged behind the demand. The cumulative square footage of the business aircraft fleet in the United States increased 61% between 2010 and 2023. Moreover, over that same period, there was an 102% increase in the square footage of larger private jets – those with greater than a 24-foot tail height. A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth over $285 billion expected to be delivered between 2025 and 2034, with over two-thirds of the deliveries expected to be comprised of larger private jets. This forecast is further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft as of December 31, 2024 is over $52 billion, an increase of approximately 6% over the prior year. These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by fixed-base operators (“FBO”). The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage. Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years. We believe our scalable, real estate-centric business model is uniquely positioned to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage. We intend to capitalize on the existing hangar supply constraints at major U.S. airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete. We expect to realize economies of scale in construction through a prototype hangar design replicated at our home basing hangar campuses across the United States. This allows for centralized procurement, straightforward permitting processes, efficient development processes, and the best hangar in business aviation. Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows. This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk. 7 Table of Contents In contrast with community hangars and other facilities provided by FBOs, the home basing hangar campuses we develop provide the following features and services: • private hangar space for exclusive or semi-exclusive use of the tenant; • adjoining configurable lounge and office suites; • low-traffic campus environments free of transient aircraft and associated activities; • line crews and services dedicated exclusively to tenants; • climate control to mitigate condensation and associated corrosion; • features to support in-hangar aircraft maintenance; • no-foam fire suppression; and • customized software to provide security, control access and monitor hangar space. We use a standard set of proprietary prototype hangar designs, which are intended to deliver high-quality business aviation facilities, lower construction costs, minimize development risk, expedite permit issuance, and facilitate the implementation of refinements across its portfolio. Hangar features include: • the ability to accommodate heavy business jets in single configuration, medium jets in twin or triplet configuration, or light jets in multi-configuration; • compliance with National Fire Protection Association (“NFPA”) 409 Group III fire code, eliminating foam fire protection systems, resulting in lower construction costs and operating expenses, as well as eliminating accidental foam discharges and the resultant negative effects on aircraft maintenance and resale value; • high-voltage capability, industrial drainage and impervious floors that support in-hangar maintenance and inspections; and • control through smartphone application. Our product strategy aims to attract tenants with exclusive or semi-exclusive access to their aircraft, minimize the risk of damage to aircraft, provide increased access, security and control, facilitate maintenance, and improve pre-flight and post-flight convenience for owners, operators, and their support crews. We believe that with no transient traffic, our home basing hangar campuses offer a shorter time to wheels-up, even during periods of peak traffic. Our research has indicated our current and typical future tenants operate late model business jets that emit less noise than other based aircraft, leading to a decreased average noise footprint at our home basing hangar campuses. We believe demand for home basing hangar campuses will be driven broadly by the growing size of the business aviation fleet in the United States and the delivery of larger aircraft with taller tail heights, as well as the privacy and security inherent at our hangar campuses in comparison to operations focused on transient and commercial aircraft. The discovery by first-time flyers in the convenience, control and comfort of general aviation has caused a shift in consumer behavior which we believe will also support increasing demand for home basing hangar campuses. 8 Table of Contents Our Properties We develop our home basing hangar campuses on long-term ground leases (or sub-leases thereof) at airports with suitable infrastructure serving metropolitan centers across the United States. Our portfolio of ground leases as of December 31, 2024 was as follows: Airport IATA Code Location (City, State) Location (Metropolitan Center) Ground Lessor Ground Lease Acres Ground Lease Exp. Year (1) Addison Airport ADS Addison, TX Dallas, TX Town of Addison 12.5 2065 Bradley International Airport BDL Windsor Locks, CT Hartford, CT Connecticut Airport Authority 8.0 2075 Camarillo Airport CMA Camarillo, CA Los Angeles, CA County of Ventura 17.1 (2) 2073 (2) Centennial Airport APA Englewood, CO Denver, CO Arapahoe County Public Airport Authority 19.7 2097 Chicago Executive Airport PWK Wheeling, IL Chicago, IL Village of Wheeling and City of Prospect Heights 15.0 2074 Hudson Valley Regional Airport POU Wappingers Falls, NY New York, NY County of Duchess 7.1 2066 Miami-Opa Locka Executive Airport OPF Opa Locka, FL Miami, FL Miami-Dade County 22.6 2079 Nashville International Airport BNA Nashville, TN Nashville, TN Metropolitan Nashville Airport Authority 15.2 2070 Orlando Executive Airport ORL Orlando, FL Orlando, FL Greater Orlando Aviation Authority 20.0 2074 Phoenix Deer Valley Airport DVT Phoenix, AZ Phoenix, AZ City of Phoenix 15.4 2061 Salt Lake City International Airport SLC Salt Lake City, UT Salt Lake City, UT Salt Lake City Corporation 8.4 2077 San José Mineta International Airport SJC San José, CA San José, CA City of San José 6.5 2044 Sugar Land Regional Airport SGR Sugar Land, TX Houston, TX City of Sugar Land 8.1 2049 Trenton-Mercer Airport TTN Ewing, NJ New York, NY - Philadelphia, PA County of Mercer 11.8 2078 Washington Dulles International Airport IAD Dulles, VA Washington, DC Metropolitan Washington Airports Authority 18.0 2084 (1) Ground lease expiration years presented assume the exercise of all lease term extension options exercisable at our sole discretion. (2) Our portfolio at Camarillo Airport consists of two ground leases which cover 6.2 and 10.9 acres, respectively. Such leases expire in 2071 and 2073, respectively. 9 Table of Contents The following tables provide supplemental information regarding each of our home basing hangar campus properties in operation and in development: PROPERTIES IN OPERATION Facility Completion Date Hangars Rentable Square Footage % of Total Rentable Square Footage Occupancy at December 31, 2024 SGR December 2020 7 66,080 12.3 % 100.0 % BNA November 2022 10 149,069 27.7 % 91.6 % OPF Phase I February 2023 12 160,092 29.7 % 100.0 % SJC Renovation Existing facility 1 41,464 7.7 % 100.0 % CMA Existing facility 4 121,931 22.6 % 77.6 % Total/Weighted Average 34 538,636 100.0 % 92.6 % PROPERTIES IN DEVELOPMENT Facility Status ​ Projected Construction Start (1) ​ Projected Completion Date (1) Estimated Total Construction Cost ($mm) (1) Hangars (1) Rentable Square Footage (1) ADS Phase I In Construction Q4 2023 Q2 2025 $ 32.9 - 34.9 6 137,835 ADS Phase II Predevelopment Q2 2025 Q3 2026 21.3 - 25.2 4 116,420 APA Phase I In Construction Q4 2022 Q2 2025 44.8 - 50.8 9 130,550 APA Phase II Predevelopment Q4 2026 Q1 2028 34.3 - 38.3 3 107,135 BDL Phase I Predevelopment Q2 2025 Q3 2026 26.8 - 33.1 3 125,400 DVT Phase I In Construction Q4 2022 Q1 2025 51.3 - 56.6 8 134,270 DVT Phase II Predevelopment Q1 2027 Q2 2028 34.6 - 38.6 6 123,646 IAD Phase I Predevelopment Q4 2025 Q1 2027 61.6 - 67.3 4 206,800 IAD Phase II Predevelopment TBD TBD TBD TBD TBD OPF Phase II In Construction Q1 2025 Q2 2026 34.1 - 36.8 3 155,100 ORL Phase I Predevelopment Q3 2025 Q4 2026 36.8 - 41.5 3 155,100 ORL Phase II Predevelopment TBD TBD TBD TBD TBD POU Phase I Predevelopment Q2 2025 Q2 2026 29.6 - 33.1 2 103,400 POU Phase II Predevelopment Q3 2026 Q3 2027 14.8 - 16.5 1 51,700 PWK Phase I Predevelopment Q2 2026 Q2 2027 85.8 - 90.1 4 206,800 SJC Phase II Predevelopment Q2 2026 Q2 2027 21.0 - 24.0 1 28,235 SLC Predevelopment Q3 2025 Q3 2026 44.9 - 49.7 4 206,800 TTN Predevelopment Q4 2025 Q4 2026 44.4 - 49.6 3 171,300 Total $ 619.0 - 686.1 64 2,160,491 (1) Our projections associated with the commencement and completion of construction, estimated total construction cost as of December 31, 2024, hangars, and rentable square footage of our properties in development are inherently subjective and require judgement to estimate. We believe that our estimates of construction costs and timelines are subject to variability based on various factors including, but not limited to, changes in anticipated site plans, hangar mix, hangar specifications, executed guaranteed maximum price construction contracts, and general market conditions. 10 Table of Contents The following table identifies the latest available information on the number of aircraft based at each of our home basing hangar campus properties and development projects: Single Engine Multi Engine Jet Helicopters Military Total Addison Airport (ADS) 305 71 147 7 - 530 Bradley International Airport (BDL) - 2 27 5 18 52 Camarillo Airport (CMA) 301 35 24 22 - 382 Centennial Airport (APA) 574 91 191 30 - 886 Chicago Executive Airport (PWK) 128 16 83 4 - 231 Hudson Valley Regional Airport (POU) 108 7 2 3 2 122 Miami-Opa Locka Executive Airport (OPF) 42 13 103 7 5 170 Nashville International Airport (BNA) 18 9 79 2 15 123 Orlando Executive Airport (ORL) 155 47 36 19 - 257 Phoenix Deer Valley Airport (DVT) 754 84 18 21 2 879 Salt Lake City International Airport (SLC) 126 29 55 13 12 235 San José Mineta International Airport (SJC) 66 17 53 6 - 142 Sugar Land Regional Airport (SGR) 98 18 37 4 - 157 Trenton-Mercer Airport (TTN) 73 16 25 18 - 132 Washington Dulles International Airport (IAD) 7 - 46 - - 53 Sources: FAA Airport Master Records as of February 2025. The following table summarizes the total aircraft operations and forecasted total aircraft operations from 2020 through 2029 at each of our home basing hangar campus properties and development projects: Total Operations Forecasted Total Operations Average Annual 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Growth Addison Airport (ADS) 109,915 114,295 120,256 119,149 119,100 126,182 131,533 137,116 143,352 145,348 3.2 % Bradley International Airport (BDL) 58,142 72,807 79,385 79,626 83,238 90,381 91,870 93,261 94,696 95,974 6.0 % Camarillo Airport (CMA) 158,782 173,970 187,076 170,566 180,162 183,216 184,005 184,797 185,592 186,391 1.9 % Centennial Airport (APA) 331,001 310,861 300,558 360,725 340,411 353,641 360,640 367,636 374,108 379,174 1.8 % Chicago Executive Airport (PWK) 77,377 99,795 97,456 98,111 98,551 97,922 98,569 99,217 99,864 100,512 3.3 % Hudson Valley Regional Airport (POU) 43,206 58,306 60,403 58,935 79,227 79,824 81,092 82,363 83,638 84,915 8.6 % Miami-Opa Locka Executive Airport (OPF) 134,683 163,215 157,286 173,897 140,955 153,387 167,305 174,221 180,645 183,024 4.0 % Nashville International Airport (BNA) 163,365 219,427 251,446 271,842 275,116 278,841 285,345 291,760 298,633 305,381 7.6 % Orlando Executive Airport (ORL) 122,839 143,840 152,282 174,314 180,221 181,076 182,632 184,190 185,750 187,313 5.0 % Phoenix Deer Valley Airport (DVT) 402,444 271,979 275,153 344,393 432,874 428,445 447,756 452,885 457,296 459,527 2.9 % Salt Lake City International Airport (SLC) 276,816 342,505 321,941 318,998 326,687 335,923 343,133 351,791 360,551 367,654 3.5 % San José Mineta International Airport (SJC) 115,895 135,032 166,038 164,564 164,630 170,333 186,163 197,496 203,543 207,385 6.9 % Sugar Land Regional Airport (SGR) 66,502 72,409 79,662 87,048 79,122 80,068 81,546 81,927 82,308 82,690 2.6 % Trenton-Mercer Airport (TTN) 88,926 85,160 105,217 99,905 93,779 94,898 98,149 101,702 102,532 103,287 2.0 % Washington Dulles International Airport (IAD) 175,944 245,805 272,889 284,866 306,582 323,609 320,961 326,323 333,439 338,469 8.1 % Sources: Historic data derived from FAA OPSNET and forecast data from FAA TAF. 11 Table of Contents Customers, Sales and Marketing We seek to maximize hangar rental charges consistent with capacity utilization at our existing and future facilities. We have, and believe we can continue to, achieve economic occupancy greater than 100% at most of our hangar campuses as certain space within semi-exclusive hangars is rented to multiple tenants, and we also seek to maximize our ability to rent available ramp space outside of our hangars, where permitted. Rental hangar space is open to the public on a non-discriminatory basis, and prospective tenants are reviewed for credit quality and nature of intended use of the facilities. We focus our operations on various types of tenants, including individuals (directly or through personally or family-owned LLCs), charter operations, flight schools, corporate fleets, government entities, and aviation service providers. We intend to develop a diversified portfolio of tenants in terms of geography, type of tenant and length of lease term. Prior to the year ended December 31, 2024, much of our historical revenue had been concentrated with our two largest tenants. Both presently and in the longer term, we do not expect to depend on a single tenant or group of tenants, the loss of which would have a material adverse effect on our business. We expect to continue to diversify our risk by having multiple types of tenants across multiple locations with varied term lengths throughout the country. See “ Risk Factors — Our rental revenue in the past has been concentrated within a small number of tenants and the loss of or default by one or more significant tenants could have a material adverse effect on our business and results of operations. ” Tenant lease terms are generally 1-10 years, with maturity dates staggered for purposes of risk management. Base lease rents vary by location, but substantially all leases feature annual rent escalation. Leases are structured as either gross or triple-net, with tenants covering insurance, taxes, common area maintenance, and utilities. The tenant leases generally do not have early termination options, and we expect renewals to be reset to prevailing fair market value. Competition The hangar space rental segment of the aviation services industry in which we operate is very competitive. We compete with national, regional and local FBOs and other local hangar real estate companies. Our competitors may include FBOs currently operating at certain airports that may have greater financial or other resources and/or lower cost structure than us. Other competitors have been in business longer than us and may have greater financial resources available. We compete with other operators, including FBOs, at all of our current locations, and our hangar campuses may also face indirect competition from operators located at nearby airports. In addition, we may be adversely affected by competition from other facilities within or outside the airports where the facilities are located, including construction of new facilities at the airports at which we operate or the expansion of hangar facilities by competitors at nearby airports. We must compete with other operators based on the location of the facility relative to runways and street access, quality of customer service, safety, reliability, value-added features, and price. See “— Investment Criteria ” for additional information regarding our competitors with respect to each particular facility. Seasonality Adverse weather conditions, particularly during the winter months, can cause delays in the development and construction of our home basing hangar projects. The geographic diversity of our development portfolio helps mitigate this risk through exposure to various geographies and climates. With respect to our ongoing hangar leasing operations, we do not experience substantial seasonal fluctuations in our revenues and the results of operations. Government Regulation FAA Regulation The industry is overseen primarily by the FAA. In addition, the Department of Homeland Security, Department of Transportation, Environmental Protection Agency, state and local environmental agencies, and local airport authorities contribute to the regulation of our home basing hangar campuses. We must comply with federal, state, and local environmental statutes, and regulations, including those associated in part with the operation of fuel storage tank systems and fuel trucks. These requirements include, among others, tank and pipe testing for tightness, soil sampling for evidence of leaking, and remediation of detected leaks and spills. Environmental and Related Matters Our home basing hangar campuses are subject to regular inspection by local environmental agencies, as well as local fire marshals and other agencies. We do not expect that compliance and related remediation work, if any, will have a material negative impact on our business. We have not received notice requiring us to cease operations at any location or of any abatement proceeding by any government agency for failure to comply with applicable environmental laws and regulations. Americans with Disabilities Act Under Title III of the Americans with Disabilities Act (“ADA”), and rules promulgated thereunder, in order to protect individuals with disabilities, public accommodations must remove architectural and communication barriers that are structural in nature from existing places of public accommodation to the extent “readily achievable.” In addition, under the ADA, alterations to a place of public accommodation or a commercial facility are to be made so that, to the maximum extent feasible, such altered portions are readily accessible to and usable by disabled individuals. The “readily achievable” standard takes into account, among other factors, the financial resources of the affected site and the owner, lessor or other applicable person. Compliance with the ADA, as well as other federal, state and local laws, may require modifications to properties we currently own or may purchase, or may restrict renovations of those properties. Failure to comply with these laws or regulations could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance, and future legislation could impose additional obligations or restrictions on our properties. Although our tenants are generally responsible for all maintenance and repairs of the property pursuant to our leases, including compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with these laws or regulations. 12 Table of Contents Environmental Matters Our properties are subject to numerous statutes, rules and regulations relating to environmental protection and our business is exposed to various environmental risks, hazards, and environmental protection requirements, including those related to the storage and handling of jet fuel and compliance with firefighting regulations. See “ Risk Factors — Our properties are subject to environmental risks that may impact our future profitability ” of this Report. We endeavor to be a leader of the industry’s initiatives to address environmental issues, and we are increasingly focused on how we can reduce our carbon footprint in a sustainable way. As part of this, our home basing hangar campuses are designed to reduce the need to reposition private jets, which reduces the use of fuel as well as air emissions and noise pollution. We operate a fleet of electric ground support equipment which have a low cost to operate and maintain. In addition, our home basing hangar campuses are designed to be electric vehicle charger-equipped and electric aircraft charger-ready. In addition, our hangar design contains environmentally friendly aspects such as no-foam fire suppression. Moreover, our hangars are designed to be both solar and wind energy capable for future installation. Insurance We maintain insurance of the types and in amounts that we believe to be adequate and consistent with industry standards. During construction, our principal coverage includes builder's risk, general liability, excess liability, and contractor's pollution liability insurance. Once operational, each campus maintains commercial property, flood, earthquake, boiler and machinery, business income/loss of rent, automobile liability, general liability, environmental liability, and worker's compensation insurance. We maintain general liability and product liability insurance in connection with our hangar manufacturing activities. We also maintain insurance coverage related to our directors and officers, employment-related liabilities, and cyber-related incidents. We require the tenants at our campuses to maintain aircraft physical damage, general liability, worker's compensation, and automobile liability insurance coverage. Human Capital As of December 31, 2024, we had 84 employees, none of which were subject to collective bargaining agreements. We also engage contractors and consultants to supplement our permanent workforce. Our operations are overseen by senior personnel with experience in business aviation and real estate, and includes top-level design, construction, operations, and finance expertise. We consider our employee relations to be in good standing. We are committed to keeping our employees informed and supported through regular communication and events, including our monthly town hall meetings. We strive to recruit from amongst the best talent in the industry and reward them appropriately. Our success depends in large part on our ability to attract, retain and develop high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors in fields such as aviation and real estate. We believe we offer competitive compensation (including base salary, incentive bonus, and long-term equity awards) and benefits packages designed to attract and reward talented individuals who possess the skills necessary to support our business objectives and assist in the achievement of our strategic goals and development plans. All employees are eligible for health insurance, a retirement plan, and life/disability coverage. Many Sky Harbour home basing hangar campuses feature the Sky Harbour Academy training program, which includes paid training for a career in the aviation industry. The Sky Harbour Academy recruits members of disadvantaged and underrepresented communities with an interest in aviation, ultimately providing such members full training and certification as line service technicians and customer service representatives. The Sky Harbour Academy aims to provide assistance with placement in aviation jobs, including full-time roles and career development tracks at Sky Harbour. Human capital strategies are developed and managed by our Chief Financial Officer, who reports to the Chief Executive Officer, and are overseen by the compensation committee and the Board. Our executive management team regularly reviews and updates our talent strategy, monitoring a variety of data, including turnover, diversity, and tenure, to design and implement effective recognition, training, development, succession, and benefit programs to meet the needs of our business and our employees. Legal Proceedings We may be involved from time to time in ordinary litigation, negotiation, and settlement matters that we expect will not have a material effect on our operations or finances. We are not currently party to any material legal proceedings, and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, or financial condition. Periodic Reporting and Financial Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the Securities and Exchange Commission (the “SEC”), are available free of charge through the investor relations sections of the Company’s website, www.skyharbour.group, as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Pursuant to a Continuing Disclosure Agreement, dated as of September 14, 2021, by and between the Public Finance Authority (Wisconsin) and the Company (the “Continuing Disclosure Agreement”) in connection with the Series 2021 Bonds, Sky Harbour Capital LLC (“SHC”), a subsidiary of Sky, is required to publish (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC, all of which are available through the website of the Municipal Securities Rulemaking Board via its Electronic Municipal Market Access (“EMMA”) system at www.msrb.org and on the investor relations section of our website. The information on our website is not, and shall not be deemed to be, part of this Report or incorporated into any other filings we make with the SEC, except as shall be expressly set forth by specific reference in any such filings. 13 Table of Contents