WestJet "Passenger Perks" - Westjet Dilutes Shares

A bizarre move, why the sudden need for cash?

...To issue shares at a time when the stock was somewhat depressed due to a recession-induced drop in air travel came as a surprise to one analyst.

"To dilute shareholders at this time, especially without any specific use for the proceeds, is a bit odd," said Cameron Doerksen, airline analyst at Versant Partners....
http://www.reuters.com/article/rbssAerospaceDefense/idUSN0935319520090909

This article says they might be trying to acquire Porter or buy some widebodies.

http://www.edmontonsun.com/money/2009/09/11/10834031-sun.html

WestJet could also be eying an acquisition, such as Toronto-based Porter Airlines, Kavafian said.

Has this guy ever been right about anything? Acquire Porter? Seriously?

From Westjet press-release:

"WestJet intends to use the net proceeds of the offering to finance
WestJet's capital expenditures, including future aircraft financing
activities, and for general corporate purposes."

The obvious inference is that getting shareholders to finance your capital acquisitions (mostly planes) is cheaper and more beneficial to the company in the long-term than incurring further debt (and hurting the bottom-line with interest payments).

From Westjet press-release:

"WestJet intends to use the net proceeds of the offering to finance
WestJet's capital expenditures, including future aircraft financing
activities, and for general corporate purposes."

The obvious inference is that getting shareholders to finance your capital acquisitions (mostly planes) is cheaper and more beneficial to the company in the long-term than incurring further debt (and hurting the bottom-line with interest payments).

Corporate Finance 101 says cost of equity is much higher than cost of debt. Companies will only raise additional equity if they fear their debt load will be growing to a point where lenders will no longer be prepared to lend to them.

Cost of long term debt is in the 6-8% range or 4-5% after tax.
Equity investors are looking for a 10-15% after tax return on their investment in relatively low risk companies - higher as the risk goes up.

From Westjet press-release:

"WestJet intends to use the net proceeds of the offering to finance
WestJet's capital expenditures, including future aircraft financing
activities, and for general corporate purposes."

The obvious inference is that getting shareholders to finance your capital acquisitions (mostly planes) is cheaper and more beneficial to the company in the long-term than incurring further debt (and hurting the bottom-line with interest payments).

Given that they're pushing back deliveries, one wonders why they need to purchase additional a/c at all.

Given that they're pushing back deliveries, one wonders why they need to purchase additional a/c at all.

In Q2 we purchased a few of our aircraft that were on lease. This money could be used to purchase more.

Rumors are pointing to things like Hawkair, adding ovens to the aircraft, removing 3 rows of 3x3 seating and replacing it with 2 rows of 2x2 seating, painting aircraft with new colors, purchasing hotel properties in Carribean, and purchasing a tour operator. Lots of rumors - have at 'er.