WestJet to be Acquired by Onex
May 16, 2019, 7:06 am
#76
Join Date: Mar 2011
Location: Canada
Programs: Star Alliance G*, Marriott Bonvoy Titanium,
Posts: 3,585
ESOP is key
As I anticipated, employee shares have become a major issue.........
WS ees do not have a pension plan i.e. they rely on the employee share ownership plan,(ESOP) comprising up to 20 % of comp. Onex has said no jo loss and status quo on the ESOP, but so what? IMO, how do your determine profitability from one part of a private equity plan??
WS ees do not have a pension plan i.e. they rely on the employee share ownership plan,(ESOP) comprising up to 20 % of comp. Onex has said no jo loss and status quo on the ESOP, but so what? IMO, how do your determine profitability from one part of a private equity plan??
May 16, 2019, 7:59 am
#77
Join Date: Apr 2005
Posts: 96
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!
Already out there that onex will put the the debt on WS balance sheet onex used to acquire the company
look no further within Canada than Post Media, Sears etc all bought up by equity funds for over a decade while milking it and saddling it with debt and high interest loans to be paid to the fund
May 16, 2019, 9:57 am
#79
Join Date: Apr 2016
Posts: 296
As I anticipated, employee shares have become a major issue.........
WS ees do not have a pension plan i.e. they rely on the employee share ownership plan,(ESOP) comprising up to 20 % of comp. Onex has said no jo loss and status quo on the ESOP, but so what? IMO, how do your determine profitability from one part of a private equity plan??
WS ees do not have a pension plan i.e. they rely on the employee share ownership plan,(ESOP) comprising up to 20 % of comp. Onex has said no jo loss and status quo on the ESOP, but so what? IMO, how do your determine profitability from one part of a private equity plan??
It’s just that it would show up as an expense against free cash flow instead of shareholder dilution.
maybe they’d do an Onex stock match instead?
I figure a lot of people also sold their shares after they vested just to diversify. It can be risky to overinvest in your primary income stream.
profit sharing would just become a totally discretionary mystery, or replaced by something not based on profit.
May 16, 2019, 10:07 am
#80
Join Date: Dec 2010
Posts: 125
I asked those exact questions regarding profit share and the only response was that it wilp continue. No comment on how the transparency aspect will work (ie. will they continue to report financials internally) and no comment on whether or not the profit share will morph into some sort of arbitrary bonus structure.
May 17, 2019, 9:38 am
#81
Join Date: Dec 2008
Location: Delta, BC
Posts: 1,646
I asked those exact questions regarding profit share and the only response was that it wilp continue. No comment on how the transparency aspect will work (ie. will they continue to report financials internally) and no comment on whether or not the profit share will morph into some sort of arbitrary bonus structure.
May 17, 2019, 10:31 am
#82
Join Date: Apr 2016
Posts: 296
Onex does own some aircraft leasing firms though. But one big addition to any segment makes it somewhat clear how the new addition is doing.
May 19, 2019, 2:52 pm
#83
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Join Date: Sep 1999
Location: Toronto, Ontario, Canada
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equity funds like Onex buy up an asset and straddle it with debt by assigning the debt used to purchase the company in the first place on its balance sheet and then make the company pay high interest rates and other fees to the equity fund and then sell/dump it once they've milked enough fees/interest out of it
Already out there that onex will put the the debt on WS balance sheet onex used to acquire the company
look no further within Canada than Post Media, Sears etc all bought up by equity funds for over a decade while milking it and saddling it with debt and high interest loans to be paid to the fund
Already out there that onex will put the the debt on WS balance sheet onex used to acquire the company
look no further within Canada than Post Media, Sears etc all bought up by equity funds for over a decade while milking it and saddling it with debt and high interest loans to be paid to the fund
Already there are pundits who this weekend presented totally opposite views of where ONEX should take WS. The Toronto Star columnist called for aggressive expansion, while the G&M commentator said it should retreat and return to its friendly LCC roots, that overseas expansions would be a costly folly. Even suggesting that WS/ONEX buy PD to strengthen its central/eastern Canada footprint and image.
May 19, 2019, 6:59 pm
#84
Join Date: Jun 2008
Location: YYC, Canada
Programs: AC 35k
Posts: 1,898
Going back to LCC isn't an option at this point... unless they want to not grow.
May 20, 2019, 12:58 am
#85
Join Date: Apr 2019
Location: Copenhagen
Programs: skyteam
Posts: 575
Jun 25, 2019, 5:23 am
#86
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Join Date: May 2002
Location: YEG
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Posts: 56,446
https://globalnews.ca/news/5427414/g...jet-onex-sale/
Federal transport minister approves sale of WestJet to Onex at price reduced by 737 Max issues
Federal transport minister approves sale of WestJet to Onex at price reduced by 737 Max issues
Jun 25, 2019, 9:48 am
#87
Join Date: Dec 2008
Location: Delta, BC
Posts: 1,646
https://globalnews.ca/news/5427414/g...jet-onex-sale/
Federal transport minister approves sale of WestJet to Onex at price reduced by 737 Max issues
Federal transport minister approves sale of WestJet to Onex at price reduced by 737 Max issues
Jun 26, 2019, 7:43 am
#88
Join Date: Dec 2010
Posts: 125
If Westjet isn't interested in going after Boeing for the lost value I wonder if shareholders can file a class action suit against Boeing to recover their lost value in the deal?
Jun 27, 2019, 11:33 am
#89
Join Date: Jul 2008
Posts: 336
I wonder what happens to settlement money if Westjet was to sue Boeing and win in a case of lost value? I would assume that any settlement would need to be paid to shareholder as a special dividend although I'm not sure any legal requirement actually exists. Westjet/Onex could just potentially pocket that money and walk away but at that point shareholders should be able to class action for a distribution of those funds.
The MAX saga needs to run its course - in the mean time they need to keep their operations rolling, confidence high, and “collaberate” with Boeing do get their significant investment back to the skies. Eventually the cases, and dust, will settle - years, and nothing I would bank on.
Jul 23, 2019, 7:15 pm
#90
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