Porter's 2Q 2010

[Thebean]

Porter has provided traffic data from 2Q 2010:

https://www.flyporter.com/fly2/About/NewsReleaseDetails?id=128&culture=en-CA

1Q 2010 metrics from their unsuccessful IPO attempt earlier this year are available at SEDAR.

Porter's 2nd quarter transborder traffic stats are now available via US DoT.

What does it all mean?

Porter's 2Q 2010 transborder l/f was 44.9%. Transborder ASM's totalled 85.75m, representing 30.3% of total system ASM's flown during the period.

MYR ran at a 61.5% l/f,(.61% of network capacity), EWR at 51.3%, MDW at 41% and BOS at 36.9%.

This info allows us to calculate that Porter's domestic l/f was 52% during the quarter.

We know their system BELF in 1Q was 54.6%. Porter engaged in an enormous daily print advertising campaign focussing on low fares during 2Q which likely resulted in yields dropping and the BELF rising. However, to give them the benefit of the doubt, we'll say their 2Q BELF remained unchanged from 1Q 2010 at 54.6%.

This suggests neither Porter's domestic or transborder operations were profitable during the quarter. Neither operated with l/f's above their BELF.

If a claim were made that transborder was profitable at these lower l/f's due to much higher yields, that would mean Porter's transborder BELF would have to have been something less than the 44.9% loads reported to the US DoT.

If this were the case, a simple calculation shows that their domestic BELF would have to be about 68.3% in order for the system BELF to settle at 54.6%.

Remember, 70% of their asm's are weighted to the domestic marketplace.

We know that Porter's domestic l/f in the period was 52% so having a domestic BELF of 68.3% would have been disasterous to the bottomline.

Anyway you cut it, it's pretty clear that red ink was a dominant feature of Porter's 2nd quarter financials.

Great product, lousy business.

[Jumpy]

The question is "What happens if they are unsuccessful in getting IPO 2.0 to the market?" Do the investors start to retreat or d they put more money into an unprofitable airline. The potential of a payout is the only reason that they are still keeping their money in Porter.

[better4me]

Jumpy;

I don't think there will be a IPO2.0 for Porter. What I suspect is that Porter will eventually be bought out by either Westjet or Air Canada/Jazz. When the Porter investors don't want to put more money in or want to cash out a large tax loss, they will go to one or the other airlines and seek a buyout hoping to get their investment back.

The Enterprise value to Porter is in their Q400s and associated people to fly the airplane. Additionally for AC it would be a way to get rid of a competitor and get market dominance back on the Triangle.

Under an AC/Jazz buyout:

- limited number of Q400s are retained on YTZ-YUL(maybe 8 daily round trips) and YTZ-YOW (2-4 round trips). The remainder of the Q400s replace with CRJ100 or Dash 8 100s on the existing routes.

- Porter retains the FBO and other ancilliary stuff.

Under a Westjet buyout:

- YTZ to YUL/YOW stay intact for the most part(maybe drop some of the unprofitable daytime 1/2 hour departures to 1 hour).

- Transborder and the rest of the domestic network gets dropped in favour of YHZ Atlantic Canada hub plus some new Q400s for Western Canada (YEG-YYC and Sask routes to YYC, YEG, and YWG).

- Porter retains the FBO and other ancilliary stuff.

[rudder]

Jumpy;

I don't think there will be a IPO2.0 for Porter. What I suspect is that Porter will eventually be bought out by either Westjet or Air Canada/Jazz. When the Porter investors don't want to put more money in or want to cash out a large tax loss, they will go to one or the other airlines and seek a buyout hoping to get their investment back.

The Enterprise value to Porter is in their Q400s and associated people to fly the airplane. Additionally for AC it would be a way to get rid of a competitor and get market dominance back on the Triangle.

Under an AC/Jazz buyout:

- limited number of Q400s are retained on YTZ-YUL(maybe 8 daily round trips) and YTZ-YOW (2-4 round trips). The remainder of the Q400s replace with CRJ100 or Dash 8 100s on the existing routes.

- Porter retains the FBO and other ancilliary stuff.

Under a Westjet buyout:

- YTZ to YUL/YOW stay intact for the most part(maybe drop some of the unprofitable daytime 1/2 hour departures to 1 hour).

- Transborder and the rest of the domestic network gets dropped in favour of YHZ Atlantic Canada hub plus some new Q400s for Western Canada (YEG-YYC and Sask routes to YYC, YEG, and YWG).

- Porter retains the FBO and other ancilliary stuff.

Jazz doesn't need Porter's Q400's (already have access to 30 of their own) and AC is bound by the revised fleet guarantee of 125 at Jazz. AC is also limited by the ACPA collective agreement as to the ratioed capacity of tier 2 lift. Adding 20-26 76 seat aircraft plus staff to the AC CPA portfolio is not in the cards. Also, AC now has enough cash and a planned YTZ presence to test Porter's financial pain threshold in 2011.

Makes more sense for WJ to acquire or enter into a long term CPA and redeploy the lift into secondary markets where the 737 is overguaged. Right now, Porter and its owners have a grossly overinflated valuation of the enterprise as a whole. If they are prepared to separate the airline and be realistic, there could be a transaction.

[inchman]

AC has already learned the painful lesson of buying out/taking over/merging with a competitor. Basically, it simply creates airspace for a new entry. AC's buy out of CP created that space and was the launch vehicle for WS growth since that time. It would have been much better to keep a weak competitor with a similar cost structure than create space for one with a low cost structure.

Notwithstanding the points raised by rudder, if AC were to buy out Porter try to get a monopoly out of the Island, there would be someone nipping at their heels in no time. It could even be door opening for the return of LeBlanc so he can soak a bunch more investors and banks while siphoning off the cash.

[SkyBlazer]

The idea of WS purchasing porter was looked at a while ago and dismissed. I doubt that it will ever return to the table again. I think that the majority of those able to make that decision would rather see it just shut the doors than buy it.

Sb

[Kip Powick]

The idea of WS purchasing porter was looked at a while ago and dismissed. I doubt that it will ever return to the table again. I think that the majority of those able to make that decision would rather see it just shut the doors than buy it.

Sb

OK.....but....let us assume that Porter shuts down....do you agree that there is someone in the woodwork who feels that they can be successful, have a better plan etc?

The question is not how long there will be a degradation of service from the island ...but....who will fill the void?

[melcrothers]

I can't see WestJet doing anything with Porter. Its totally against the core business model of KISS... one aircraft type. WJ can't even seem to get their heads around a 1st cousin aircraft like the single aisle B757 that would give them the comfortable legs to do Hawaii from anywhere in the west as the flight deck is compatable with the current B737 NG technology. IMHO - Porter would be an impossible match.