WestJet to be sold in friendly deal to Onex Corp. for $5 billion

[TheStig]

I agree with Rudder, Westjet is a bargain at $5B. It's share price has been undervalued due to instability and with foreign ownership limits increasing to 49% there is lots of potential to unlock value.

I believe that WJ has more value as a whole than the sum of its parts, do you think there is billions to be found selling off Encore? Gates space at T3? It's barely existent loyalty program? Swoop?

Whether Swoop proves to be a success or failure is irrelevant it can easily be rolled back into the mainline or limited in its size just to fend off upstarts. Failing businesses get sold off for parts, WJ is disorganized, trying to fight above its weight, and still profitable. The game plan doesn't have to change but rather continue it's evolution into a full service provider, re-establish its footing with employee groups, negotiate long term contracts, establish profitability and then ONEX can look to 'divest', go public or milk a cash cow.

Interesting that the leasing company ONEX has partnered with has no leases to AC or WJ (yet) but a few tails at Sunwing (start the rumours!) and has a leased fleet about the same size as WJ with about a 50/50 Boeing/Airbus ratio.

I'm not sure why ONEX is being accused of being some corporate chop shop? It looks to me that since the failed CAIL/AC mergere they've successfully re-organized, and interestingly given WJ's strong brand, renamed, a number of companies that they continue to hold.

[cloak]

Oh I'm very relaxed, thank you! Just amusing that two hours into the announcement some think they have this whole thing figured out!!

Spend a few decades in the industry and a few days, weeks, or months in the room with investment bankers, Gerry Schwartz, Trinity Times Investment, or Cerberus and you stop thinking like a pilot and start thinking like them.

It is all about perspective. This is a financial transaction. Nothing more.

Pilots dream about airplanes. Investors dream about return on investment.

Posturing aside, what exactly is your point? That Onex is going to "divest" WestJet's assets? Break it up into pieces? sell its parts to make profit?

Your assertion makes no sense because if as you say to "investment bankers" it's just a financial transaction and nothing more, and Onex wants to sell WestJet parts for more right away, WestJet could do it itself to get maximum cash, it didn't need Onex.

It follows that in order to gain maximum gain out of their investments, "investment bankers" invest some money, develop the business, and then sell it either privately to interested parties or gradually in an IPO, or both, in order to maximize their return.

It also makes no sense to sell parts of themselves to create more competition and problem for themselves down the road. Just because Air Canada did it, doesn't mean that "investment bankers" do too! WestJet is worth a lot more as a group than individual parts.

[Rezy]

You gave yourself the support you were looking for. I said stripping, you said reorganizing. Same thing, just one of them is a management buzz word. But if you really want to do the research just look at the companies they bought and fixed up, they "reorganized" them as you would say, or as I would say, break up the fat.

No, there's a huge difference between changing management and finding new customers, and selling off components of the business. I'd like to know what, if any, companies they've chopped up and sold off.

Id like to see some support for this statement because every single major sold off their regional arm and set up a capacity purchase agreement.

Encore is already in a CPA with WestJet. Sure, the company could spin Encore off for a few million, but to what end? Would there be anything stopping Encore from then buying some RJs and bidding on work for, oh, AC or Transat, or even some creative new venture with Delta? Or maybe they would buy A220s and compete directly on routes they share with WS. They already operate on some common routes, like YYC-YEG and YYC-YLW, where Encore's lower cost structure would give them a huge advantage if they went head-to-head. Controlling Encore and Swoop would be a way more important goal than making a bit of cash off the top by selling them. If anything, I would see Swoop folded back into WestJet and a new fare class created to try to retain the pax, but I don't see how changing the relationship with Encore would improve anything.

I don’t think you fully understand how a CPA works, every major airline (including WJ) has a CPA with other airlines. None of your predictions happen and are contractually illegal. All of your concerns are moot if Encore did sell off and get a CPA with WJ.
Unfortunately, no one knows Onex’s plans as of yet, but Encore employees certainly have more to worry about than WJ, as its at a higher risk. Onex spent 5 billion on a myriad of entities within WJA stock, the largest being WestJet and it is therefor the least likely to be sold, which makes it the most secure job.

[Rezy]

It also makes no sense to sell parts of themselves to create more competition and problem for themselves down the road. Just because Air Canada did it, doesn't mean that "investment bankers" do too! WestJet is worth a lot more as a group than individual parts.

Certain sell offs don’t create competition, such as a CPA with Encore, or selling WestJet Vacations to a reseller whilst keeping bookings in house. It’s only competition if you continue to own an asset that will actually compete. For example, they could lease out all the wide body aircraft to other airlines, and then only operate narrowbody aircraft. While I think this is ridiculous and extremely unlikely, I’m just using it as an example of the many things Onex could do to sell off parts and not actually compete.

[Daniel Cooper]

Guess they arent buying Transat?

What happens to Swoop?

I still think they'll buy Transat, and merge them.

[cloak]

imo Onex is unlikely to be selling much in the short term. I believe there is great opportunity for growth particularly in certain areas of the business. Their involvement in leasing aircraft will make aircraft acquisition easier for the group. Paying such big premium on the shares shows Onex believes in WestJet group and its value.

[Redwine]

Spirit Airlines, eh? Edition, here we come....

[Fanblade]

Onex has a long history of building value through leveraged acquisitions mergers.Taking pieces and putting them together to create more. Any leveraged buyout comes with risk. The leverage will end up on the companies bottom line.

Often in partnership with someone else who has expertise in a particular sector. This looks way to large of an undertaking for just Onex.

I think another shoe will drop yet. Is Onex (via WJ) the Transat suitor? With the foreign ownership changes is their a oneworld or skyteam member lurking behind this?


I bet we can only see part of this picture so far. I bet AC is watching very closely.

[Rezy]

imo Onex is unlikely to be selling much in the short term. I believe there is great opportunity for growth particularly in certain areas of the business. Their involvement in leasing aircraft will make aircraft acquisition easier for the group. Paying such big premium on the shares shows Onex believes in WestJet group and its value.

I think the big premium shows they believe in the WestJet brand and the value the brand can create. I don’t think they will sell much either, although I do believe there will be a significant shakeup as it doesn’t seem likely they invested 5 billion to stay on the previous course. Whether that’s a rapid wide body expansion or a return to roots, 737 LCC, is yet to be seen.

[cloak]

Shrinking the business does not produce over 5 billions! This deal is possibly still developing!

I'm not one for shorting stocks as a general practice, but if I were a gambler, I'd be shorting AC; surprising that it rallied today!

[Arnie Pye]

Gerry Schwartz thinks a little more globally than any of us ever will.

WestJet Vacations is proportionally tiny compared to AC Vacations or Sunwing/Transat. Lots of room for growth but WS never really put much effort or resources into funding it. Purchase and merge Transat or Sunwing and now you've got a real vacation arm.

WestJet Rewards is proportionally tiny compared to Aeroplan. Likewise, the market dictated some sort of rewards program but WS never really funded or grew this business. Amia could use a little competition.

The MRO side of the business has a 30% labour advantage over US MRO's and they're closer than ferrying a plane to South America. Could be some room to grow here too.

Quick - name another airline that fully owns their regional feeder. Look at nearly every airline out there and you'll find a feeder owned by someone else with a CPA. My guess is that Encore will get a nice 10 year CPA then be one of the first things sold off. I'm not suggesting that just because Air Canada sold theirs that WS will. Nearly every other airline out there has done this. WestJet is the exception, not the rule.

Here's hoping that long term this works out better than Skyservice and their foray with a private equity partner.

[Victory]

I'd be shorting AC; surprising that it rallied today!

You're surprised it rallied when their biggest competitor just got sold to a corporate chop shop? Good luck with those shorts.

[pianokeys]

No, there's a huge difference between changing management and finding new customers, and selling off components of the business. I'd like to know what, if any, companies they've chopped up and sold off.

Are you aware of what a "private equity" firm does? While changing management and creating an IPO are in the realm of their definition, so is selling off assets. You need to learn what a private equity firm does, because words like "reorganization" and "restructuring" can very much mean a wide spectrum. Im not going to do your own homework for you but just go look at the companies they bought and have restructured. Some of them faired off better than others.

Encore is already in a CPA with WestJet. Sure, the company could spin Encore off for a few million, but to what end? Would there be anything stopping Encore from then buying some RJs and bidding on work for, oh, AC or Transat, or even some creative new venture with Delta? Or maybe they would buy A220s and compete directly on routes they share with WS. They already operate on some common routes, like YYC-YEG and YYC-YLW, where Encore's lower cost structure would give them a huge advantage if they went head-to-head. Controlling Encore and Swoop would be a way more important goal than making a bit of cash off the top by selling them. If anything, I would see Swoop folded back into WestJet and a new fare class created to try to retain the pax, but I don't see how changing the relationship with Encore would improve anything.

First off your predictions would bust a CPA contract so that wont happen.

Second, if that was such a risk as you assume, then why is SkyWest, Air Wisconsin, Express Jet, and some other US regionals not owned by the airlines they have CPAs with?

[Ah_yeah]

Would be interesting to know how many shares Onex already owns. The numbers being thrown around are fairly crude but if Onex had been quietly accumulating in the 18's and 19's the media "value" of the deal goes down significantly.
If people recall back to the AC/CAIL days of ONEX, Schwartz had the ear of the federal Liberals whose only concern was to save face and have an optically acceptable solution. Something to think about as the next phase of the deal emerges. Also, despite CAIL teetering and AC heavily encumbered in those days, there were a lot of assets to value...like LHR,LGA,etc slots. Just a guess but, I'd bet there a few large large bits of info still to come.
Wish the WJA brethren well in unsettled times.

[fish4life]

Pump and dump.

Westjet has been struggling for years now and onex is absorbing 1.5 billion in debt. How they plan on making a profit on this, I don't know. Maybe push swoop and sell all wj assets as said above.

Better than wj folding and leaving everyone in the lurch, for now.

WestJet has only had one quarterly loss since 2005. If that's struggling, then boy would I sure like to struggle!

Yes, trouble started as they were rolling out encore, which they then had to scale back, then came swoop and new routes and new aircraft.

Just shows that your quarterly returns are tailored for the investor as they still have 1.5 billion in debt that they don't include in their reports. But ya, fuel prices.

Uh pretty sure they have always showed that debt on quarterly reports, an example I believe they owe 600 million for the Q400’s at encore still being paid down over 10 years. They also have roughly 1.5 billion in cash which I’m sure they are getting which will cover the debt.

It would be like if you had $500k in RRSP’s and a 500k mortgage, even though the dollar value is the same you still have 500k in debt. It would be ridiculous to pay off your debt and leave yourself with no cash because then you would have no liquidity which is even worse than having debt with liquidity.

With that in mind how would a company sell off encore when they owe 600 million on their airplanes, not a lot of cash there. This deal values WJ at about half of what AC is worth while still being less than half the operation in size so they aren’t going to just “ sell it off” because who in their right mind would buy the sold off pieces instead of just buying AC stock which is a better value?

[co-joe]

Why is it a "friendly deal"? Just asking...

[confusedalot]

WestJet has only had one quarterly loss since 2005. If that's struggling, then boy would I sure like to struggle!

Yes, trouble started as they were rolling out encore, which they then had to scale back, then came swoop and new routes and new aircraft.

Just shows that your quarterly returns are tailored for the investor as they still have 1.5 billion in debt that they don't include in their reports. But ya, fuel prices.

Uh pretty sure they have always showed that debt on quarterly reports, an example I believe they owe 600 million for the Q400’s at encore still being paid down over 10 years. They also have roughly 1.5 billion in cash which I’m sure they are getting which will cover the debt.

It would be like if you had $500k in RRSP’s and a 500k mortgage, even though the dollar value is the same you still have 500k in debt. It would be ridiculous to pay off your debt and leave yourself with no cash because then you would have no liquidity which is even worse than having debt with liquidity.

With that in mind how would a company sell off encore when they owe 600 million on their airplanes, not a lot of cash there. This deal values WJ at about half of what AC is worth while still being less than half the operation in size so they aren’t going to just “ sell it off” because who in their right mind would buy the sold off pieces instead of just buying AC stock which is a better value?

Spent most of my life with no debt and just a bit of cash. Overall net worth is in the positive. Not fantastic, but still a pretty big amount. Is that a fiscal problem?

[tps8903]

Why is it a "friendly deal"? Just asking...

Not hostile.....

[Ah_yeah]

Why is it a "friendly deal"? Just asking...

Because WJA's board (which represents the share holders) recommends its acceptance. In the AC case it was hostile because AC went to great lengths to block it.

[North Shore]

I can’t see how selling off Encore (even with a CPA) makes sense? Part of their recruitment draw is the One List - without that, then salaries are going to have to go up to attract and keep people. Keep the one list, and sell Encore leads to huge training bills at the subsidiary...where’s the upside?