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Full Post quote

April 12, 2021

The WestJet Group continues to operate self-sufficiently with the exception of the Canada Emergency Wage Subsidy (CEWS), which flows through directly to our employees. We have already communicated we will restore service to all 42 airports that we served pre-COVID and did so at our earliest opportunity. Since October 2020, WestJet’s refund policy has been industry-leading in Canada, and consistent with the U.S., UK and EU.

We remain committed to building back even stronger for the betterment of all Canadians. A healthy WestJet will help lead a stronger recovery, increasing competition and consumer choice while lowering the cost of travel for Canadians, all while anchoring Canada’s vital air travel and tourism sectors.

The WestJet Group of Companies continues discussions with the Government of Canada on a safe travel-restart framework. We remain focused on a long-term solution that will serve the best interests of Canadians.

We will provide updates on our discussions with the Government of Canada at the appropriate time.

https://www.westjet.com/en-ca/news/2...ter%3A20210413
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cirrusdragoon

This is very intriguing. Makes me wonder who really was on the ropes vs others in the airlines in Canada. Positive news, looking forward to further developments of this story.

tcook052

Rival carriers such as Calgary-based WestJet Airlines Ltd., owned by asset manager Onex Corp. remain in negotiations with the federal government over potential support packages. Prior to Air Canada’s announcement, there was an expectation airlines would be able to access government-backed loans without giving up any equity in their business.

McGill University professor John Gradek said WestJet chief executive officer Ed Sims and Onex “aren’t going to like the terms, but they are under pressure to cut a deal, to maintain their competitive position.”

Fiordland

This is a positive. If these deals are positioning AC and WS to be more competitive with respect to each other then they are also positioned to be more competitive relative to foreign airlines.

Onex probably does not want the government as a partner. I have mixed felling about that. It may not be in the best interest of Onex, it may actually be in the best interest of WestJet. Time will tell.

tracon

https://toronto.citynews.ca/2021/04/...talks-drag-on/

OTTAWA — WestJet CEO Ed Sims says the federal government’s aid package for Air Canada could be “problematic” unless his company gets equitable treatment, as talks over pandemic relief continue between Ottawa and Canadian carriers.

24left

tcook052

So what's the hold up? Strike the best bargain you can for WS without complicating talks with a demand it be virtually identical to the one AC negotiated. Time to move on. I'm just an unpaid armchair critic but would think the best time to ink a deal is right after your competitor has done so and not weeks or possibly months later when a bunch of factors could change the landscape.

YYCguy

I’m not sure one virtually identical to the one AC got would be practical for WS. For instance, WS isn’t publicly traded so the government can’t buy shares in it. Also, if the interest rate or any of the other loan terms that AC had to abide by aren’t to the benefit of WS, then I think WS should keep negotiating for the best deal for it and not just because “AC got it”. Just my two cents.

Adam Smith

The government certainly can buy shares in WS. It's just a more complicated exercise to value them, because there isn't a public market price.

The process would go something like this:

• The government and WS agree that the feds will get a stake as part of the aid package. The Feds may want a certain percentage stake, or the dollar amount of the equity stake may be related to the dollar amount of the whole package, with the ownership percentage to be determined.
• The government likely hires an outside advisor, either an investment bank or an accounting firm, to assist with the valuation, so that it can claim to have had expert advice on what WS was actually worth. When it acquired the Trans Mountain pipeline, it hired the investment banking arm of one of the large Canadian banks. WS/Onex may or may not hire any advisors
• To determine the percentage the government gets (e.g. it's putting up $250MM of equity, how many shares does it get?), or the amount of dollars it will have to pay for its stake (e.g. what's the price for 6% of the company), the parties use market data on comparable public company valuations. AC is obviously the closest comparable, but they would likely look at the US airlines as well, and possibly some other international ones. A variety of metrics will be looked at, and there will be much arguing over what the appropriate metrics are, and which years to look at (2022 EV/EBITDAR? 2023 P/DACF?). Eventually the two sides will agree that WestJet, as an enterprise, is worth a certain amount, and then it's relatively simple from there. Or they fail to agree and the whole process collapses

The Feds might want the same 15% discount on the market value that they got from AC. The strike price on the warrants would likely be at around the current market value, with the same vesting structure.

The only other complication would be around how and when the government's shares get disposed of. The feds already agreed to certain restrictions on their AC shares, but once those expire, they're presumably free to sell them however they'd like. With WS being private and controlled by one PE firm, would the government have a right to require the company to list on public markets so that it would have more options to move its position? Or might Onex want a right to buy back the position at a certain price, or if certain milestones are achieved?

But none of these issues are insurmountable if the parties want to do a deal.

The bigger obstacle is likely whether WS/Onex really needs the money and is willing to do what it takes to get it.

The interest rates on the loans were very favourable, likely well below what AC could have raised in the market. For instance, the rate on the refund facility was the 7-year federal bond rate. I doubt that WS would get any better, and from a competitive perspective, I doubt the feds would want to be seen to be giving AC much more favourable terms either. Now that the precedent has been set, it's easy for the government to hammer away that this is the template and you take it or leave it.

On Time Reports

Looks like WS is tried of all the negative PR surrounding air travel. WS recently made a new Twitter account just for the "PR, Media and Government Relations team". Will be interesting to see what they post, hopefully it will not be just a rehash of what is posted on WS website already and have been frequently shared on WS main account.

@WestJetNews
https://twitter.com/WestJetNews

Frequentlander

This was just posted on the WestJet News Twitter account. I'm not sure what it's meant to achieve.

cirrusdragoon

Most likely to emphasize to the federal government that it takes all
of Canada’s aviation sector to rebuild the economy not just one airline.

Adam Smith

Adding political pressure on Ottawa to give WS a bailout on terms it's willing to accept, which would be positive for the Alberta economy. And even if it's unsuccessful, the AB government gets to score more points for "standing up to Ottawa" and all that.

The "industry-leading refund policy" was presumably meant to lighten the mood and get a few laughs.

On Time Reports

"global aviation hub"??

That's quite a bold statement considering WS only has a commitment of 10 widebodies. In recent years, chatter about serving destinations in Asia, South America have dwindled.

Frequentlander

"We likes the pipeline, thanks but planes are way cooler and we don't want to chip in ourselves because that might mean we'd have to do something like - I dunno, implement a modest provincial sales tax"