WestJet to be Acquired by Onex

Old May 13, 19, 11:14 pm
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IIRC....doesn't Nigel Wright work for Onex? If he does, maybe they'll give him the WestJet file and the new tag line can be "Good to Go".
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Old May 14, 19, 1:37 am
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Originally Posted by Transpacificflyer View Post
If Onex is looking for quicker profits, then I expect we will see a slight shift in focus towards more premium services and new Asian routes.
Developing routes to Asia would take time, and initially would result in the opposite. I would expect a couple years of losses before any WS Asia routes would become profitable. The market is already highly competitive & WS has zero recognition in Asia.
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Old May 14, 19, 7:13 am
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Originally Posted by cedric View Post
Developing routes to Asia would take time, and initially would result in the opposite. I would expect a couple years of losses before any WS Asia routes would become profitable. The market is already highly competitive & WS has zero recognition in Asia.
I agree. Asia is cutthroat. They'd do better to expand TATL and could easily fill all 789s doing that, at least in summer. In winter, they could operate smaller Europe footprint (LGW, CDG) and deploy the remaining fleet on domestic transcons and more premium sun destinations.

The most likely Asian destination in my books is still ICN to codeshare with KE, and to a lesser extent, TPE to codeshare with CI.

Last edited by YXUFlyboy; May 14, 19 at 7:28 am
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Old May 14, 19, 7:19 am
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Originally Posted by Mauibaby2008 View Post


do you work for ONEX ?
No. Though I have been a shareholder since the company started up and went public. It is among the ethically best private equity banks in the world.
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Old May 14, 19, 7:22 am
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Originally Posted by cedric View Post
Developing routes to Asia would take time, and initially would result in the opposite. I would expect a couple years of losses before any WS Asia routes would become profitable. The market is already highly competitive & WS has zero recognition in Asia.
Chinese mainland airlines have decimated the market's viability and made it less profitable for other carriers. Korean market has collapses with the sabre rattling from the North, and Asiana is on the blocks and Korean is phasing out F cabins (as is Asiana). No time to jump into that market.
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Old May 14, 19, 8:48 am
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I find it highly unlikely that WS would even consider beginning to open discussions for TPAC within the next five years, especially as an "LCC" (though I'm hoping this acquisition would shift this focus)

Chinese airlines have made TPAC cutthroat and the only realistic gateways for WS are YVR and YYC. AC can barely sustain YYC-NRT on its own though, even with connecting feed. Unless WS somehow convinces KE to open ICN-YYC, their best bet would be to open flights to SEA to feed DL TPAC.
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Old May 14, 19, 9:47 am
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Originally Posted by Frequentlander View Post
IIRC....doesn't Nigel Wright work for Onex? If he does, maybe they'll give him the WestJet file and the new tag line can be "Good to Go".
https://www.onex.com/our-team/nigel-wright
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Old May 14, 19, 10:12 am
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Originally Posted by Shareholder View Post
No. Though I have been a shareholder since the company started up and went public. It is among the ethically best private equity banks in the world.
Seems like anyone viewing Onex positively is seen as having some sort of evil interest. I'd tend to agree with you that Onex didn't make this play to strip-out value from WestJet and dump it, makes no sense to pay the kind of premium they did with any other interest than to grow it and/or possibly merge/partner with other carriers to get some larger efficiencies of scale. Continuing the current growth/expansion path (with some more refined strategy) appears to me to be the only way to realize a good return on this investment.
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Old May 14, 19, 12:13 pm
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Moody's just put WS on review for downgrade (got this as an email; can't seem to find a link to the press release):

Toronto, May 14, 2019 -- Moody's Investors Service ("Moody's") has placed WestJet Airlines Ltd.'s ("WestJet") Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating (PDR) and its Ba2 Senior Unsecured rating on review for possible downgrade. WestJet's SGL-2 speculative grade liquidity rating remains unchanged. The outlook has been changed to rating under review from stable.

The ratings review follows the announcement that WestJet has entered into a definitive agreement to be acquired by Onex Corporation ("Onex"). The transaction value is approximately C$5 billion including assumed debt.
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Old May 14, 19, 4:11 pm
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Originally Posted by robsaw View Post
Seems like anyone viewing Onex positively is seen as having some sort of evil interest. I'd tend to agree with you that Onex didn't make this play to strip-out value from WestJet and dump it, makes no sense to pay the kind of premium they did with any other interest than to grow it and/or possibly merge/partner with other carriers to get some larger efficiencies of scale. Continuing the current growth/expansion path (with some more refined strategy) appears to me to be the only way to realize a good return on this investment.
Andrew Willis, business columnist at the Globe and Mail, discusses what Onex's strategy might be for WestJet and what the deal means for other players like Transat.
https://www.bnnbloomberg.ca/company-...y-plan~1682083

seems very likely
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Old May 14, 19, 4:12 pm
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Lots of armchair captains and investors in our midst!

Private Equity firms like Onex care about one thing only - making money. They make money by buying an asset as low as possible (the #1 generator of returns for PE firms) and selling as high as possible.

To get the lowest purchase price: good negotiations, relationships, and/or seeing value in something that the current owners don't see.
To get the highest selling price:
  1. Improve margins through operational improvement: more revenue and spend less to get that revenue
  2. Financially re-engineer the balance sheet: using cash flow to pay down debt. Onex is buying WestJet for ~$5b. If they use $500m of their money and $4.5b of loaned money ... and then sell the business for $5.5b (and paid off $1b of debt). The $500m they invested is now $2b ($5.5b proceeds less $3.5b remaining debt). Even though the company value is only +$500m
  3. Multiple expansion: companies are often valued in public markets on a share price to earnings ratio. For an airline, PE firms would apply a multiple to operating cash flow (ie how much money operations make, irrespective of financing activities) to determine the valuation. WestJet's operating cash flow in 2018 was $700m. Therefore they paid "7.1x operating cash flow" ($5b / $700m). If other airlines have a higher multiple (i.e., you are spending more money to get a dollar of operating cash flow), private equity can try and improve this by showing to potential owners that the company has more growth ahead, will earn more money in the future, and then can be bought at a higher price.
As part of the deal, Onex will have figured out how much value will come from each of those 3 levers. Most of the concern in this thread comes from implementation of #2 - using cash to pay down debt, not investing in assets ... This is the "pump and dump" from the last 15-20 years ... which in my view is a dead-end for private equity firms. Therefore it comes from #3 - developing a better growth trajectory for the company, and #1 , running the business better.

For employees, I imagine Onex will keep some type of ownership scheme in place for them (give them shares in the private company, profit sharing, etc) since happy employees help you run the business better. In addition, there will be a new management team in place, and likely key roles 2 levels below the CEO will change. While Onex will sit on the board and take an active interest (weekly/monthly review of financial accounts), they won't run the place day-to-day. And they'll need the unions on board - fighting them hard won't help in my view

For customers, I imagine cheap unprofitable activities (eg YXU-YUL for $90) are gone. Waste and bad spending cleaned up. Decisions made on fleet and brands quickly. Potential M&A and rolling-up Transat. Decisions on fuel hedging. And of course finding ways to grow revenue through ancillaries & surcharges, higher ticket prices, monetisation of the frequent flyer/spend program. more WestJet credit cards, etc etc.

A valid strategy could to "be more like Spirit". They could also be more like Virgin Australia (multi-brand), or easyJet (low cost plus) ... or a true peer to full-service Air Canada.

Looking forward to seeing their thesis of how they will generate value to warrant the premium purchase price!
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Last edited by shuuy; May 14, 19 at 9:05 pm
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Old May 14, 19, 5:33 pm
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Originally Posted by shuuy View Post
or a true peer to full-service Air Canada.
Shudder!!!
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Old May 14, 19, 5:36 pm
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Originally Posted by shuuy View Post
A valid strategy could to "be more like Spirit". They could also be more like Virgin Australia, or easyJet ... or a true peer to full-service Air Canada.
Looking forward to seeing their thesis of how they will generate value to warrant the premium purchase price!
No. They will not move WestJet back to the LCC model. They will accelerate the transition to full-service network carrier.
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Old May 14, 19, 5:48 pm
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Originally Posted by YXUFlyboy View Post
No. They will not move WestJet back to the LCC model. They will accelerate the transition to full-service network carrier.
agreed
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Old May 14, 19, 11:48 pm
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Originally Posted by robsaw View Post
I'd tend to agree with you that Onex didn't make this play to strip-out value from WestJet and dump it, makes no sense to pay the kind of premium they did with any other interest than to grow it and/or possibly merge/partner with other carriers to get some larger efficiencies of scale.
My frustration dealing with the private equity ownership isn't that they're out to strip us of assets and then sell the corpse to patent trolls. It is that they themselves don't know what their long-term plans for our business are and at all times we're concurrently executing on spin-off, sale, merge and growth strategies.

Keep on growing but don't do anything that would make it difficult to sell a certain part of the business, integrate with a competitor or become an undesirable acquisition.
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