Porter going public via IPO

[rudder]

http://www.financialpost.com/news-sectors/story.html?id=3069257

[Guest rozar s'macco]

Nothing like 1000-point drop in the DOW 1 week before your IPO. DOH!

[Thebean]

You say that Porter is a "High Cost" operator yet the Financial Post article says

Would not it be more accurate to say that Porter is a low cost operator with a very low load factor thus unable, at present, to return a profit until such time as their Load Factor increases?

Everyone likes to throw around the term "low cost". It's easy to say, much harder to achieve.

With 24.1 cent casm over a 370 mile asl, Porter is anything but low cost.

What do you figure WJ's costs might be over a 370 mile stage length? 24.1 cents a mile?

Porter's now advertising $99 fares to YQM. Competing on price with sky high unit costs? That's a clever move. They are simply the latest in a long line of airlines that have attempted to succeed with the high cost, low fare model.....

Do the math: 742 miles, 18 cent fully allocated stage length adjusted casm. Are there any further questions as to why they were the worst performing airline in North America in 1Q 2010?

They can easily increase their l/f by discounting, just as they did this past quarter. They suffered a 15.6% drop in yield from 56.6 cents to 47.7 cents but l/f increased to 47%.

The discounting pushed the BELF required to cover off operating costs and interest expense to 54.6%. Chances are, they'll discount further to get to achieve 55% l/f's, only to figure out that strategy will push their BELF well over 60%. They are chasing the carrot.

Just wait and see what happens to those yields and the BELF when they are faced with direct competition.

After 4 years or so, they can't seem to get ridership levels up even with daily full page ads in Canada's most expensive media market.

And then there's the cumulative losses of $44m+ since launch.

It's a mess.

[vikingwarrior]

What's wrong with this picture of the IPO as it sits:

A 4 year old monopolistic airline with a sophisicated cutting edge fuel efficient aircraft generating a $6 million dollar loss in Q1 2010 notwithstanding:

- a self defined market area that gets expanded my management from a 500 to 800 nautical miles-jeez why not just say YVR already

- a doubling of passenger volume in Q1 2010 vs. Q1 2009,

- heavy price discounting across the board (ie. 20% you won't see with WJ or AC)

- yet is generating only 85% cent of its 2009 passenger traffic through its coveted monopolistic hub and 15% away from Toronto (where's the market focus)

- institutions refusing to go long this stock in the first call for orders (and hence if they're not long they may go short)

and yet Porter could only manage to fill 47% of seats available flying out of the monopolistic lions den Jazz was kicked out of in 2006?

One has to scratch their head to wonder how bad the order book is?

Everyone likes to throw around the term "low cost". It's easy to say, much harder to achieve.

With 24.1 cent casm over a 370 mile asl, Porter is anything but low cost.

What do you figure WJ's costs might be over a 370 mile stage length? 24.1 cents a mile?

Porter's now advertising $99 fares to YQM. Competing on price with sky high unit costs? That's a clever move. They are simply the latest in a long line of airlines that have attempted to succeed with the high cost, low fare model.....

Do the math: 742 miles, 18 cent fully allocated stage length adjusted casm. Are there any further questions as to why they were the worst performing airline in North America in 1Q 2010?

They can easily increase their l/f by discounting, just as they did this past quarter. They suffered a 15.6% drop in yield from 56.6 cents to 47.7 cents but l/f increased to 47%.

The discounting pushed the BELF required to cover off operating costs and interest expense to 54.6%. Chances are, they'll discount further to get to achieve 55% l/f's, only to figure out that strategy will push their BELF well over 60%. They are chasing the carrot.

Just wait and see what happens to those yields and the BELF when they are faced with direct competition.

After 4 years or so, they can't seem to get ridership levels up even with daily full page ads in Canada's most expensive media market.

And then there's the cumulative losses of $44m+ since launch.

It's a mess.

[vikingwarrior]

Porter owners announce a seat sale

http://www.theglobea...article1584798/

[Moon The Loon]

So $120M buys 34% of the company. My math is a bit rusty, but those numbers put the value of the company at $360M. I'm curious what makes the company worth that much. I'm also curious how this pitch would go over on the Dragon's Den.

THAT's why people are balking. The company is not worth that much. Giving credence to the "take the money and run" rumours.

[vikingwarrior]

So $120M buys 34% of the company. My math is a bit rusty, but those numbers put the value of the company at $360M. I'm curious what makes the company worth that much. I'm also curious how this pitch would go over on the Dragon's Den.

The offering is implying that the owners equity is worth $350 million and the debt component along with equity values the entire enterprise at $656 million for an 4 year old monopolistic airline that can't fill even half of the seats with bums...oh yah forgot to mention-can't fill half of the seats with bums including free beer.

I guess there are no bums flying on Porter

[Seeker]

Some day soon Porter will disappear and then guess what? The collapse will be blamed on Air Canada. We will be accused of being predatory and there will much whining and complaining about the loss - even from people that have never once flown with Porter. I have no doubt at all that we will see BNN interviews with Deluce saying that he could have made it work if only AC hadn't competed with him and had left the island alone!

[Thebean]

Some day soon Porter will disappear and then guess what? The collapse will be blamed on Air Canada. We will be accused of being predatory and there will much whining and complaining about the loss - even from people that have never once flown with Porter. I have no doubt at all that we will see BNN interviews with Deluce saying that he could have made it work if only AC hadn't competed with him and had left the island alone!

Porter launched its high cost, low fare strategy in 1Q 2010, resulting in higher loads, but forcing yields down 15.7% and rasm down 5.1%.

Oh dear. Look what happened to the BELF. It shot up to 54.62%.

The delta between their l/f and belf is now 7.58 percentage points, second worst in North America after AMR at 7.72% points.

Watch for that BELF to continue climbing through the year. Competition at YTZ will knock the average fare down at least $20 to $144 and both fuel and maintenance will increase.

Porter's loads will increase to about 53%, but their BELF will shoot up to about 62.5%. Their margin, including interest will wallow between -15 and -18%, with quarterly losses in the $6.5 to $8m range.

The stock will sink down, down, down. Watch for a collapse the nano second the stock becomes unrestricted and original investors can bail and all those shares flood the market.

At $5.50 a share, they need 46 cent earnings with a 12x multiple, (and I don't know who would dream up 12x for an airline that loses money hand over fist), to support the stock price. That means net earnings of close to $14m. The best quarter they've ever had was $455,000 profit, which is tantamount to a rounding error. They've lost $10.58m net in the past 5 quarters alone.

If there is any more obvious shorting opportunity on the planet, I'd like to see it.

If I were a Porter Captain, I'd be keeping my career options wide open.

1Q 2010

Available Seat Miles 220,868,900

Revenue Passenger Miles 103,897,802

Load Factor 47.04%

Delta between BELF and actual L/F -7.58%

Expenses $53,308,000

Interest Expense $3,667,000

Revenues - from all sources $49,070,000

Operating Earnings -$4,238,000

Op Earnings incl interest -$7,905,000

Operating Margin -8.64%

Operating Margin including interest -16.11%

Cost per ASM $0.2414

Cost per ASM including interest $0.2580

Yield per RPM $0.4723

RASM $0.2222

Profit/Loss per ASM (incl interest)-$0.0358

1Q break-even load factor 54.62%

ASL 370

[Miles]

Great info, thanks Bean

[Briler]

CommunityAIR's Press Release:

Porter Airlines – Where’s the Momentum?

Porter Aviation Holdings’ Final Preliminary Prospectus, released last Wednesday, reveals some disturbing numbers in its first quarter (Q1) 2010 financial results.

Having spent $25 million in sales and marketing over the 2009 year, what does it have to show for that spending in 2010? Do the Q1 2010 numbers disclose any momentum in a positive direction?

A comparison between the last two consecutive quarters, Q4 2009 and Q1 2010, tells the story. Revenues dropped by $4,300,000. Operating expenses increased by $2,164,000. Cost per available seat mile increased almost 10% - from 22 cents to 24 cents. Net income of $455,000 in Q4, 2009, slid in Q1 2010 to an operating loss of $5,972,000 in Q1 2010. That loss over three months is $1,363,000 greater than the total loss for all of 2009.

Surprisingly, these worsening numbers were achieved after spending a whopping $7.4 million on sales and marketing in Q1 2010, and regularly offering discounted pricing.

Other numbers also paint a difficult financial picture. Porter’s load factor (percentage of seats filled) dropped in Q1 2010 to 47% from 50.2 % in Q4 2009. The Q1 load factor dropped slightly below the total 2009 figure of 47.9%. Still flying with more than half its seats empty. Working capital deficit ($11,846,000 as of December 31, 2009) deteriorated to $33,467,000 by March 31, 2010.

Restricted cash ( money held by credit card companies as security for unused ticket purchases, should they have to be refunded) jumped from $12,256,000 at December 31, 2009 to $17,581,000 at March 31, 2010 Unrestricted cash fell by $10,732,000 to $9,179,000 at March 31, 2010 – enough for about two weeks’ expenses (monthly expenses are now almost $18 million).

Accounts payable rose to almost $28 million from $24 million at December 31, 2009. Given spending of $14 million per month (excluding salaries) in Q1 2010, suppliers are waiting about two months to be paid. How patient will they continue to be?

As reports from Porter’s customers are positive, one would have expected these numbers to be much more positive. Producing worsening numbers after almost four years of operation and massive expansion suggests there’s something deeply wrong with Porter’s business model.

As one long-time industry insider noted:

"Their operating margin including interest as an expense places them squarely, and quite handily, as the worst performing airline in North America in 1Q 2010. For the record, that margin is -16.11%. As I recall, the next worst was AMR [American Airlines] at -10%."

Another financial analyst put it this way:

"What's wrong with this picture? A 4 year old monopolistic airline with a sophisticated operation generates a $6 million dollar loss in Q1 2010 notwithstanding a doubling of passenger volume vs. Q1 2009 and heavy price discounting across the board.

And Porter could only manage to fill 47% of seats available?"

[MD2]

It appears that Mr. Bean writes for community air, or they just help themselves to whatever may serve their cause:"ends justify their means"! What exactly is the "end" for this group anyway: to shut down the Island airport and add it to their back yard, and send more passengers to Pearson, as though the few that live near the Island airport are more important than the millions near Pearson, or is their opposition only to Porter and if their "beloved airline" was to fly from there it would be OK with them? How can any group with such narrow self-serving vision have objective viable arguments?!

One can wonder that with such erudite and expert analysis to determine the future, why would people bother actually living-out their lives, as opposed to simply submitting to their judgment and prediction?! In reality however, life is much more dynamic, fluid and exciting to be reduced to such simplistic predictions; it is a complex multi-ingredient stew, as opposed to some ordinary cooked beans!

As opposed to becoming a captive audience, one can see beyond the smoke and mirrors to discover the truth of the arguments. For instance, Mr. bean has been protesting the "monopolistic pricing" of Porter and has been quoted by his friends at community air. Instead of accepting this as a matter of facts expressed by "experts" and "analysts", a quick perusal of the Internet reveals that this is simply not true in any shape or form. Here are some examples of the "walk-up" or last minutes fares from Toronto to:

Boston: PD=999 AC=1111 WS=does not fly

Chicago: PD=915 AC=971 WS=does not fly

New Arc: PD=697 AC=558-868 WS=does not fly

Montreal: PD=184 AC=184-204 WS=174-299 (only 6 rimes a day)

Ottawa: PD=189 AC=189-209 WS=144-249 (only 5 times a day)

Halifax: PD=299 AC=170-249 WS=259-468

Quebec: PD=129 AC=129-179 WS=179 (only once a day)

St John's: PD=299 AC=209-329 WS=354

Sudbury: PD=199 AC=561

T Bay: PD=200 AC=219-249 WS=160-324 (one each)

Ottawa-Halifax: PD=299 AC=179-349 WS=289-424

Ottawa-St John's: PD=299 AC=349 WS=353-409

Halifax-St John's:PD=129 AC=149-209 WS=124-209

It seems that not only Porter's prices are not "monopolistic" as they say, they are rather quite reasonable since they do offer a better full service product.

The other argument is that Porter's LF is low. Well this is a known fact that with increase in capacity of new companies that go after higher market share comes the reduction in LF. Now instead of 20 flights a day, if Porter also flew 5 or times a day as WS, its planes will have much higher LF, but their focus may be elsewhere right now. Since they are becoming a public company, these are known facts, especially for those who are expert analysts!

Now, every company has its challenges, but if these so called analysts did not flinch for 85 million loss at AC and simply attributed it to low business of the first Q, one may wonder why are they not as understanding of Porter and compare its 1st Q of 2010, to the last Q of 2009?!! Not that I have any special relationship with Porter, or have any "expert" analysis to give, but it seems that this young innovative company is reminiscent of WARDAIR for many, offering great convenience and a good product, and will do well going forward. Those that agree will invest in it, those that don't stay clear!

[Seeker]

It seems that not only Porter's prices are not "monopolistic" as they say, they are rather quite reasonable since they do offer a better full service product.

Better? You wouldn't say that after flying all the way to YOW and then YHZ during thunderstorm season at FL250 in a Dash8.

[rudder]

MD2 - If Porter wants to impress then all they have to do is one thing....make money! At this point, all that is going on is some type of accounting slight of hand using questionable revenue and cost projections, and performance measures that offer even a glimmer of solvency such as EBID, EBIDTAR, and other jargon.

If Porter adds another 7 aircraft in the next 12 months then pnly one thing is certain - more money will be lost. And this time around, it will be a combination of private equity and IPO investors money. PAH is worth more once it spins off its subsidiary holdings than it is worth in its current corporate form.

[MD2]

Better? You wouldn't say that after flying all the way to YOW and then YHZ during thunderstorm season at FL250 in a Dash8.

The truth is that this is only the case few times a year, and thunderstorms of that size are normally circumnavigated anyway. Frankly, passengers care more about their space on the plane and the service they receive as opposed to the altitude; some with fear of flying actually prefer lower!!

MD2 - If Porter wants to impress then all they have to do is one thing....make money!

Well dear, surely some would argue the same about Air Canada, especially since it went even further to cancel its shares and sell new ones! But stocks as you know are sold on the promise of the future as opposed to the past, so their argument through their prospectus is that they will.

[rudder]

Well dear, surely some would argue the same about Air Canada, especially since it went even further to cancel its shares and sell new ones! But stocks as you know are sold on the promise of the future as opposed to the past, so their argument through their prospectus is that they will.

As currently constituted, PAH will never make money. Potential investors must believe that an ACE strategy is in the offing and that there will be cash/stock proceeds that will result from sale of subsidiary divisions.

[CanadaEH]

It appears that Mr. Bean writes for community air, or they just help themselves to whatever may serve their cause:"ends justify their means"! What exactly is the "end" for this group anyway: to shut down the Island airport and add it to their back yard, and send more passengers to Pearson, as though the few that live near the Island airport are more important than the millions near Pearson, or is their opposition only to Porter and if their "beloved airline" was to fly from there it would be OK with them? How can any group with such narrow self-serving vision have objective viable arguments?!

One can wonder that with such erudite and expert analysis to determine the future, why would people bother actually living-out their lives, as opposed to simply submitting to their judgment and prediction?! In reality however, life is much more dynamic, fluid and exciting to be reduced to such simplistic predictions; it is a complex multi-ingredient stew, as opposed to some ordinary cooked beans!

As opposed to becoming a captive audience, one can see beyond the smoke and mirrors to discover the truth of the arguments. For instance, Mr. bean has been protesting the "monopolistic pricing" of Porter and has been quoted by his friends at community air. Instead of accepting this as a matter of facts expressed by "experts" and "analysts", a quick perusal of the Internet reveals that this is simply not true in any shape or form. Here are some examples of the "walk-up" or last minutes fares from Toronto to

Community Air has its own agenda, but the facts have been presented and Porter is not the "profitable" airline Deluce has been making it out to be. Not only is it not profitable, it's extremely unprofitable. Jetsgo was around for about 4 years and was "wildly profitable" too. When it expanded too fast it couldn't fill its planes and when it couldn't fill its planes it couldn't pay its bills.. and when it couldn't pay its bills, well, you know............

[MD2]

As currently constituted, PAH will never make money. Potential investors must believe that an ACE strategy is in the offing and that there will be cash/stock proceeds that will result from sale of subsidiary divisions.

Sure, this is one speculation or "opinion", and opinions come a dime a dozen. It could also be that investors see there is much better chance of Porter making money than Air Canada, since as you say Air Canada has already cancelled its old shares and issued new ones, sold all its divisions, owns little to nothing, already has a very high load factor and a very high cost and still loses money, so how can it ever make money going forward? Whereas Porter they see as a young vibrant company that has survived the attacks of its competitors and expanded in the face of economic melt-down, owns lots of hardware, all its subsidiaries, has a relatively low load factor due to being a new player, but also has the lowest break-even point, and when it increases its load factor a few points, it will become more profitable. Air Canada is already near the max and nowhere to go, unless it completely remodels itself.

[Seeker]

The truth is that this is only the case few times a year, and thunderstorms of that size are normally circumnavigated anyway. Frankly, passengers care more about their space on the plane and the service they receive as opposed to the altitude; some with fear of flying actually prefer lower!!

It only takes once to make a believer and "circumnavigated?" - you're obviously not a pilot, that's for sure.

[Thebean]

I'm still waiting to see some compelling quantitative evidence of how Porter plans its fiscal turn around from an airline with just about the worst operating metrics on the continent to one that will be able to produce an EPS that supports a $5.50 share price given a generous 12x multiple by years end.

I can't decide who is more blindly optimistic. Virgin America or Porter?

No other airline in Canada has ever had more difficulty filling seats. Porter made an effort to increase l/f in 1Q by discounting and that resulted in yields cratering 15%+ and belf shooting up to 54%+. The end result? The worst margins on the continent.

Where's the $13m net profit gonna come from? Better yet, given the enormous first quarter 2010 loss, how will the company produce net profits of $20m or so in the next 9 months just to get to the aforementioned $13m net.

Will the Canadian Airline's Pixie Dust Fairy make her belated return to the marketplace after a 12 year hiatus and wave her magic wand?

We know yields will fall and fuel and maintenance will go up. Loads may go up a bit due to Porter's low fare strategy of the month, but rasm is on it's way down. I've never seen high cost airlines do particularly well by trying to go head to head with pricing offered by airlines with dramatically lower unit costs. It's a fools game. That's why you don't see Holt Renfrew compete on price with Wal Mart and that's why Porter's operating margins including interest were -16% in the past quarter.

The high cost, low fare strategy doesn't work, and let me tell you, the low fares haven't even begun out of the island. Wait till competition arrives. Those average fares need only drop $10-$15 bucks per ticket to have the wheels completely fall off. Let's be clear. Porter's economics obviously illustrate the wheels are pretty wobbly to begin with.

I wouldn't count on those sorts of monopolistic yields out of New York City for any length of time either. Once the walkup drops to $359 or so out of YYZ with a decent daily sched, the willingness of about 90% of walk up traffic to spend twice that amount will disappear overnight.

There's a very good reason why DGN often stated "if you don't come to work scared sh*tless in the morning, there's something wrong with you". If you happen to work at Porter, you'd better get used to that concept. You'll be living it soon.

You'll also have to deal with some pretty pi$$ed off shareholders who will pretty quickly come to realize that their hopes of an appreciating stock are nothing more than foolish dreaming.

Have fun.

[Maverick]

Whereas Porter they see as a young vibrant company that has survived the attacks of its competitors and expanded in the face of economic melt-down

Umm, what percentage of Porter's flying actually has direct competition? ie: Not to/from Toronto Island? A pittance I'm sure. But I am ready to concede the point if you directly answer the question.

To say that a company has "survived" attacks from its competitors is laughable at best and disingenuous at worst. Your competitors have done nothing more than put out a few probes.

PAH is a mutt MD2, You and Robert both know this.

I'd wish you luck but this kind of shell game is not good for the industry that feeds my family.

[Thebean]

Umm, what percentage of Porter's flying actually has direct competition? ie: Not to/from Toronto Island? A pittance I'm sure. But I am ready to concede the point if you directly answer the question.

To say that a company has "survived" attacks from its competitors is laughable at best and disingenuous at worst. Your competitors have done nothing more than put out a few probes.

PAH is a mutt MD2, You and Robert both know this.

I'd wish you luck but this kind of shell game is not good for the industry that feeds my family.

Here's the piece of the puzzle that MD2 either didn't know, or didn't want to correct me on. I was waiting to see if he would. I'm not surprised he didn't.

The IPO will create about 21.82m new shares on top of a total 39.7m shares owned by Regco, OMERS, DanCap, Edgestone and GE that will appear as a result of various preferred and variable voting shares being converted to common shares.

RBC, the lead on the deal has an 8x EPS multiple.

Folks: It's simple math.

IPO $120,000,000

IPO Price $5.50

Shares issued 21,818,182

Total Shares 61,478,182

Market Cap $338,130,000.00

Multiple 8

EPS Required $0.69

Net Profit Required $42,266,250.00

Yep....that's right.

Porter, the little airline with the worst operating metrics on the continent, has to produce a net profit of $42,266,250 to generate an eps of 69 cents to justify an 8x multiple on a $5.50 stock price.

They've lost $40m+ since launch and the biggest quarterly profit they've ever admitted to was $455k.

I mean, seriously. What more needs to be said?

[Seeker]

Here's the piece of the puzzle that MD2 either didn't know, or didn't want to correct me on. I was waiting to see if he would. I'm not surprised he didn't.

The IPO will create about 21.82m new shares on top of a total 39.7m shares owned by Regco, OMERS, DanCap, Edgestone and GE that will appear as a result of various preferred and variable voting shares being converted to common shares.

RBC, the lead on the deal has an 8x EPS multiple.

Folks: It's simple math.

IPO $120,000,000

IPO Price $5.50

Shares issued 21,818,182

Total Shares 61,478,182

Market Cap $338,130,000.00

Multiple 8

EPS Required $0.69

Net Profit Required $42,266,250.00

Yep....that's right.

Porter, the little airline with the worst operating metrics on the continent, has to produce a net profit of $42,266,250 to generate an eps of 69 cents to justify an 8x multiple on a $5.50 stock price.

They've lost $40m+ since launch and the biggest quarterly profit they've ever admitted to was $455k.

I mean, seriously. What more needs to be said?

Bean, in light of what you just posted could you explain stock-shorting and how we can best make some money on the suckers who buy into the IPO?

[mo32a]

A little tough to short sell an IPO.

http://www.investopedia.com/ask/answers/05/062905.asp

[J.O.]

MD2:

Please don't insult our intelligence by suggesting that you have no connection to Porter. It is blatantly obvious that you do.