Porter going public via IPO

[Thebean]

Perhaps MD2 can fill us in on this little nugget.

In order produce an EPS of 69 cents that supports the $5.50 stock price at an 8x multiple, Porter is going to have produce an annual operating profit, including interest of something in the order of $60.38m. Knock 30% off for taxes to get it down to $42.3m, (69 cents x the 61.5m shares outstanding).

That's an operating margin of 28.75%.

To put this in perspective, after 4 consistently profitable years, WestJet produced their best year ever in 2000 with operating earnings including interest of $50.52m on revenues of $332.52m, or a margin of 15.1%.

Over the past 15 months, Porter has racked up operating losses including interest of $21.605m on revenues of $200.27m, resulting in a margin of -10.8%, easily the worst numbers produced by any publicly traded airline in North America.

In order to support the IPO share price, Porter has to increase it's operating margin from -10.8% operating margins produced since Jan 1 2009 to 29%, to almost double the best margin WestJet achieved in its best year ever.

This doesn’t even pass the giggle test.

Porter has had a profit in one of it's quarters, and at $455,000 that profit could quite easily be categorized as a rounding error.

They've got toe to toe competition arriving that will knock fares down, fuel going up and the maintenance holiday expiring progressively on their fleet.

Anyone who buys into this fairly tale deserves to lose their shirt.

Their only hope is that there are even dumber investors out there who push this thing up for a little while before reality sets in and the freefall begins.

[thor]

Perhaps MD2 can fill us in on this little nugget.

In order produce an EPS of 69 cents that supports the $5.50 stock price at an 8x multiple, Porter is going to have produce an annual operating profit, including interest of something in the order of  $60.38m.  Knock 30% off for taxes to get it down to $42.3m, (69 cents x the 61.5m shares outstanding).

That's an operating margin of 28.75%.  

To put this in perspective, after 4 consistently profitable years, WestJet produced their best year ever in 2000 with operating earnings including interest of $50.52m on revenues of $332.52m, or a margin of 15.1%.

Over the past 15 months, Porter has racked up operating losses including interest of $21.605m on revenues of $200.27m, resulting in a margin of -10.8%, easily the worst numbers produced by any publicly traded airline in North America.

In order to support the IPO share price, Porter has to increase it's operating margin from -10.8% operating margins produced since Jan 1 2009 to 29%, to almost double the best margin WestJet achieved in its best year ever.

This doesn't even pass the giggle test.

Porter has had a profit in one of it's quarters, and at $455,000 that profit could quite easily be categorized as a rounding error.

They've got toe to toe competition arriving that will knock fares down, fuel going up and the maintenance holiday expiring progressively on their fleet.

Anyone who buys into this fairly tale deserves to lose their shirt.  

Their only hope is that there are even dumber investors out there who push this thing up for a little while before reality sets in and the freefall begins.

Ice bergs AHOY!!!!

[spreadsheet]

CNW Group Portfolio E-Mail

PORTER AVIATION HOLDINGS INC.

Transmitted by CNW Group on : June 1, 2010 16:13

Porter Aviation Holdings Inc. defers IPO due to market conditions

TORONTO, June 1 /CNW/ - Porter Aviation Holdings Inc. announced today that it has decided not to proceed with the previously announced proposed offering of its common equity due to unfavorable market conditions caused by volatility in the equity markets.

"Given current market conditions, we believe it is prudent to defer the offering at this time," said Robert Deluce, president and chief executive officer of Porter Aviation. "Our company is well-positioned to wait until the equity markets stabilize before deciding whether to proceed with a new public offering."

Porter Airlines' business continues developing well with year-over-year passenger numbers improving by more than 150,000 in the first quarter of 2010 and profitability metrics showing significant gains over the same period.

About Porter Airlines

Porter Airlines is Canada's third largest scheduled carrier, based at Billy Bishop Toronto City Airport. Porter is committed to offering speed, convenience and service as part of a premium travel experience. A refined journey begins on the ground with comfortable airport lounges and service-oriented team members. The experience continues seamlessly in the air with spacious interiors and well-appointed crew. Passengers enjoy complimentary services, including free in-flight wine, beer and premium snacks, all aboard modern aircraft.

In 2009, Porter achieved an industry-leading break-even load factor of 49.3 per cent relative to other North American publicly traded airline companies. The airline was also noted in 2009 as part of Ipsos' independent Canadian Business Travel Study with 93 per cent of customers being at least very satisfied with Porter. Of this number, 54% were extremely satisfied.

[roadbiker]

Yeah, didnt see THAT coming...

"unfavourable market conditions" - translation: "no one was interested because our financials are a mess and we're a terrible investment"

[Seeker]

Porter Aviation Holdings Inc. announced today that it has decided not to proceed with the previously announced proposed offering of its common equity due to unfavorable market conditions caused by volatility in the equity markets.

"Given current market conditions, we believe it is prudent to defer the offering at this time," said Robert Deluce, president and chief executive officer of Porter Aviation. "Our company is well-positioned to wait until the equity markets stabilize before deciding whether to proceed with a new public offering."

HAH! As predicted by me:

AEF thread link

[thor]

HAH!  As predicted by me:

AEF thread link

So Porter has lifted up her financial skirt to the world (paraphrasing bean) and it's still ice berg city. Now the question is, when does Deluce want to stop losing money and just shut down the operation?  Deja vu, Victor P.

[moeman]

I'm just glad that all the "Mom and Pop" investors didn't get fleeced.

[Fido]

I'm just glad that all the "Mom and Pop" investors didn't get fleeced.

If any Mom or Pop had invested in this turkey they would deserve to lose their money.

[Maverick]

If any Mom or Pop had invested in this turkey they would deserve to lose their money.

It wouldn't be mom and pop that invested it would be their brokerage house.

Brokers win, mom and pop lose. That's how these work. This one stunk so bad the big guys couldn't even short it.

The deathwatch is on.

[Moon The Loon]

HAH! As predicted by me:

Sheesh. You sound like someone else around here...

[rudder]

So Porter has lifted up her financial skirt to the world (paraphrasing bean) and it's still ice berg city. Now the question is, when does Deluce want to stop losing money and just shut down the operation?  Deja vu, Victor P.

Certainly there was not enough lipstick available for this bovine. I wonder if the underwriters come away with anything given that no sale means no commission. As a company formed and funded by private equity, the obvious source for more capital will be those same investors. And as for how long the losses will continue to be funded, it depends on the patience of the original investors who are still seeking a meaningful return on their investment.

[MD2]

Well, that's too bad. This would have been a good opportunity to buy it at a discount. When they come back, it is unlikely that it is discounted so much. However, given the market conditions, it is probably in the best interest of its current stakeholders.

I am often amused by those from Air Canada faulting others for lack of profitability! In case you have forgotten folks, you just posted over 85 millions in losses in the last quarter, plus about 500 millions last year and another 7-800 the year before. Few years ago, your company cancelled its shares that it had sold to poor "moms and pops" as you say, then issued new ones instead which have also sunk to about 7% of their IPO price. Air Canada does not have a stellar financial record, it is always in arrears with its retirement fund obligations and in fact has manipulated its own workforce into concessions while giving its executives multi-million dollar bonuses for those "cost reductions". It has now sold most of its assets, and continues to lose money in spite of very high load factors, which begs the question: when is Air Canada ever going to make money and return the investment of the likes of me who gave it their hard-earned money in good faith? Give back the principle, you can keep the interest! People in glass houses should not throw stones!

As for you Mr. Bean since you asked, there were many things that I could call you on, but first what would be the benefit, and secondly to be honest I stopped reading your posts a few pages back. Your true motives, if there were any doubts, became evident to me when you started comparing the first Q of 2010 with the last Q of 2009. Even I know those are not comparable and never compared, for a fancy analyst, it removes any credibility! As little as I know, I will be happy making my own financial decisions.

[Kip Powick]

Well, that's too bad. This would have been a good opportunity to buy it at a discount. When they come back, it is unlikely that it is discounted so much. However, given the market conditions, it is probably in the best interest of its current stakeholders.

I am often amused by those from Air Canada faulting others for lack of profitability! In case you have forgotten folks, you just posted over 85 millions in losses in the last quarter, plus about 500 millions last year and another 7-800 the year before. Few years ago, your company cancelled its shares that it had sold to poor "moms and pops" as you say, then issued new ones instead which have also sunk to about 7% of their IPO price. Air Canada does not have a stellar financial record, it is always in arrears with its retirement fund obligations and in fact has manipulated its own workforce into concessions while giving its executives multi-million dollar bonuses for those "cost reductions". It has now sold most of its assets, and continues to lose money in spite of very high load factors, which begs the question: when is Air Canada ever going to make money and return the investment of the likes of me who gave it their hard-earned money in good faith? Give back the principle, you can keep the interest! People in glass houses should not throw stones!

As for you Mr. Bean since you asked, there were many things that I could call you on, but first what would be the benefit, and secondly to be honest I stopped reading your posts a few pages back. Your true motives, if there were any doubts, became evident to me when you started comparing the first Q of 2010 with the last Q of 2009. Even I know those are not comparable and never compared, for a fancy analyst, it removes any credibility! As little as I know, I will be happy making my own financial decisions.

I stopped reading your posts a few pages back. oh yeh...I'm sure...........and here we have a great example of a A 3-D response.

Deny, Deflect and Distort...

I'm afraid that your credibility as an individual who has their pulse on the marketplace and aviation industry has taken a bit of a dive.......You'd been better to bite the bullet and either say nothing about this whole fiasco, when it started, instead of touting how wonderful Porters IPO was going to be........

I know so very little about investing but the expose of numbers that Bean posted were undeniable ....yet you chose to ignore FACTS, kept running up the flag and hoping everyone would salute it......

Better to have admited that you were/are terribly wrong ...in this case.

Have a nice week

[Miles]

MD2, you have been owned.

[Maverick]

Michel Deluce 2 (squared)

[mrlupin]

MD2,

What is the relevance of Air Canada's poor results with normal investors or employees? Do you want to use AC's performance as a measuring stick for Porter? And if the market is valuing AC at 7% of it's IPO value, wouldn't you say that the market is efficient? When Porter has their IPO, the market will give it a price...

Eric

[props2you]

I, for one, give MD2 some credit. After the aborted IPO I didn't think we'd ever hear from him again!

[Seeker]

Sheesh. You sound like someone else around here...

I am so seldom right that I need to make a lot of noise about it when I am.

[Thebean]

As for you Mr. Bean since you asked, there were many things that I could call you on, but first what would be the benefit, and secondly to be honest I stopped reading your posts a few pages back. Your true motives, if there were any doubts, became evident to me when you started comparing the first Q of 2010 with the last Q of 2009. Even I know those are not comparable and never compared, for a fancy analyst, it removes any credibility! As little as I know, I will be happy making my own financial decisions.

I'm still waiting for a coherent response to any of the quantitative analysis presented, which, by the way, was all 100% backed by the data Porter itself provided to the world at large.

This is what's known as being hoisted by your own petard.

What would you like to compare 1Q 2010 to? 3Q 2007? Would that make you happy?

Porter is a short haul airline. It's asl has been as low as 275 miles meaning that it competes against other forms of travel, namely the automobile.

Short haul airlines tend to see higher loads in from October through March due to poorer drive conditions. A short haul / business focussed airline will see it's core demand peak in the 4th quarter due to:

1. Increasingly poor drive conditions

2. Increased business activity from mid Sept through mid December

3. Higher loads associated with the winter holiday season.

1Q is different, largely because once school is back in, the leisure component disappears, business travel remains low through most of January and Porter's short haul network is of no appeal for winter sun seekers in late Feb and March. An aversion to alternative transportation forms remains, esp on the Toronto to Montreal / Ottawa routes.

2Q has business, but little leisure and short-haul travel increasingly competes with the car.

3Q sees a significant reduction of business traffic, (with transborder traffic cratering in September), with leisure traffic flying at fares that will never support Porters high unit costs. The airline competes with the car.

In otherwords, it is very likely the 4th quarter is consistently Porter's best quarter of the year, yet in 4Q 2009, the airline could only produce an operating profit of $455k and a net of something just around break-even, (though Porter didn't provide a 4Q 2009 P&L).

That, my friend, is why it is relevant to look at 1Q 2010 vs 4Q 2009. The data clearly indicated that no traction was being built in the marketplace. Worse, it made it pretty obvious Porter was altering it's strategy to compete with much lower cost operators by lowering fares, but forcing it's BELF much higher.

Only American Airlines had a larger % gap between it's load factor and it's break-even load factor in 1Q 2010. It's quite simple to make the claim that all that needs to be done is raise l/f and profitability will present itself, but it's much much harder to do in practice. I can think of dozens of airlines in the world, starting with AA, who have struggled with this issue. If there were an easy solution, it would have already been found.

Add to this the issue of competition arriving forcing yields down, (and given the apparently finite nature of the d/t airport's market), quite possibly driving l/f down as well and the outlook for Porter simply isn't particularly compelling.

If you want to bury your head in the sand and make decisions based on what little knowledge you apparently have, be my guest. It's your money.

You won't, however, get very far attempting to pump sunshine up the market's backside.

Did you really expect the market to buy into the argument that Porter was on the verge of achieving annual margins twice as high as the best annual margin WJ ever achieved which would therefore support the $5.50 IPO price?

Here's a suggestion. Next time you go to market, bring a track record of about 6 quarters of consistent and improving net profitability.

Better yet, make sure you tie up all the folks out there who know precisely how to drive a Mack truck through the gaping holes in your prospectus.

Even better, bring in some people that are able to take a fresh look at the plan and turn the business around.

Oops. I forgot. You aren't reading this.

[rudder]

We had always considered doing this in the fall, and were well positioned to wait until market conditions stabilize. Weve never felt under any pressure to do it in the spring.

Well go back to the drawing board, Mr. Deluce said. ".... but under no circumstances were we prepared to sell our stock at any price."

Either the Porter advisors should be fired, or some of the executive suite. This will rank in the epic category of lack of situational awareness. It remains to be seen whether Porter's corporate credibility has been dealt a fatal blow. The only stupider move would be to bring this back to the market in the fall of 2010.

Bottom line is that the principal investors want their money back, hopefully with a gain. PAH would be wise to look at selling off subsidiary operations on a one-off basis.

As for growing the airline, they will have to find somebody with the desire to burn cash.

[Seeker]

Either the Porter advisors should be fired, or some of the executive suite. This will rank in the epic category of lack of situational awareness. It remains to be seen whether Porters's corporate credibility has been dealt a fatal blow. The only stupider move would be to bring this back to the market in the fall of 2010.

I do believe Mr. Deluce is caught between a rock and a hard place - he has to do the IPO before the whole thing really takes a turn for the worse. If the IPO doesn't happen soon, it'll never happen.

[Maverick]

http://watch.bnn.ca/#clip308964

He is not the best spinmeister out there...

He may have made a slip when he mentions some alternate equity vehicles to "tide" them over around the 3:20 mark.

[Ex 9A Guy]

The lipstick was being painted on with a pretty thick brush. Touting the 49% BELF that they have a hard time achieving and Ipsos satisfaction ratings as a measure of financial performance. :Scratch-Head:

[vikingwarrior]

The measure of a mans worth is only as good as his word....

In Robert Deluce's case, it is very hard to believe anything coming out of his mouth has any credibility. For years now, he's professed that Porter was profitable on numerous occaisions as quoted in more than a dozen business articles.

Then we get the folllowing spin being spewed in this Reuters article:

"Deluce said that once markets settle down Porter will again consider a public offering as well as "other forms of public financing". The company was in good shape, with passenger numbers and profitability up in the first quarter, and did not need the money now."

http://www.pehub.com...28PEHub+News%29

What planet is Robert on???? Profitability up (leading one to believe they are making money) when it would be correct to say "losses narrowed". A $5.9 million dollar loss in a quarter is not chump change and is almost $24 million annualized if that trend were to continue.

As for "not needing the money now".....how does Robert plan to deal with the working capital deficit of $34 million dollars.

From Brian Iler's post:

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.

If I were a Porter creditor, I'd be pretty nervous right now. A $ 33.5 million dollar capital hole that sorely needed to be rectified with the IPO.

Possibly MD2 (Michael Deluce) may wish to take a stab at how a reasonable and logical man would take the above situation any other way.

No faking it, no excuses just an honest comment on how one can't come to the conclusion that Porter's in deep trouble financially

[Thebean]

I am told Bob Deluce is a very nice guy. I'm sure he is.

He is, however, completely and utterly delusional when it comes to the airlines prospects.

The only thing that matters is the bottom line.

He's never had one and I can't produce a model that illustrates how he'll ever get one.

The current loss rate is not sustainable and it's only going to continue as costs go up and yields tumble.

By the way, Bob, your 1Q 2010 BELF was above 54%. If you keep dropping fares to push ridership, that break-even will be above 60% before too long.