WestJet to be Acquired by Onex
#62
Join Date: Mar 2002
Location: YYJ
Posts: 4,132
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.
#63
Join Date: Jun 2008
Location: YYC, Canada
Programs: AC 35k
Posts: 1,883
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, 2019 at 7:28 am
#64
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#65
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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.
#66
Join Date: Oct 2011
Location: DTW
Posts: 322
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.
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.
#67
Join Date: Dec 2002
Posts: 7,978
#68
Join Date: Dec 2008
Location: Delta, BC
Posts: 1,645
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.
#69
Join Date: Jun 2011
Location: NYC
Programs: AA GLD, AC
Posts: 4,197
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.
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.
#70
Join Date: Apr 2019
Location: Copenhagen
Programs: skyteam
Posts: 564
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.
https://www.bnnbloomberg.ca/company-...y-plan~1682083
seems very likely
#71
Join Date: Apr 2002
Location: +61
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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:
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!
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:
- Improve margins through operational improvement: more revenue and spend less to get that revenue
- 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
- 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.
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!
Last edited by shuuy; May 14, 2019 at 9:05 pm
#73
Join Date: Jun 2008
Location: YYC, Canada
Programs: AC 35k
Posts: 1,883
No. They will not move WestJet back to the LCC model. They will accelerate the transition to full-service network carrier.
#75
Join Date: Jan 2007
Programs: No single airline or hotel chain is of much use to me anymore.
Posts: 3,275
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.
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.