Porter Looking To Sell, Lease Back Toronto Island Terminal

[Thebean]

Need........cash..............now........

The Friday afternoon before a long weekend timing of the release tells me all I need to know. Kansas City based Vanguard Airlines, a joke of an airline if there ever was one, was notorious for pulling this stunt in the mid to late 90's.

And then they wonder why the financial markets don't take them seriously when they do stuff like this......

If this was a "good news" story, as Porter would like to spin it, they would have waited until Tuesday or Wednesday to release it, along with all the other positive stories you'll see on the various wires next week.

Let's say Porter has 5% interest on the debt owed to who ever has the paper on the building. We'll assume for now who ever has the debt isn't foreclosing on Porter, having seen the books and been unimpressed.

Porter will sell the facility to, presumably, a sophisticated owner who is going to want to make a profit on the delta between what he collects in rents and fees from the lessees and what he pays the bank in principle and interest repayments.

I doubt they'd want to have a lessor lease 100% of the building from them and then allow said lessor to sublease, at a profit, space to other airlines, amenities and set rates and charges in the building.

Those would all become new head leases and fee agreements with the new landlord. Why would Porter sell the building if they have to maintain the same infrastructure and management to operate it as a lessee instead of as the owner?

Any sophisticated landlord is going to want a significant premium on his return to justify the risk of owning a building that has such limited appeal in the open market. It's not an apartment building in Edmonton with a seemingly endless supply of prospective lessees. It's a terminal building at an airport with a dominant tenant who has never been able to establish its ability to generate profitable operations who's business is going to be under further attack as WJE rolls into the various safe harbors that have allowed Porter to cash flow all these years. That's going to scare the fertilizer out of most prospective buyers and seriously jack up the cap rate.

I would imagine that any new owner would want at least a 10% return on their investment, likely resulting in at least a doubling of rental and airport fee expense to Porter.

If the GTAA was more flush with cash, I could see them, or someone like them coming to the table. If the thing doesn't work, they'd just raise the AIF's in all their facilities to make it so.

In a business where the idea is to recapture all extraneous margins, I can think of no compelling reason how Porter could create a business case to do this, and lose control of its most important asset, unless there is a requirement to raise cash immediately.

We've all seen this movie before and know precisely how it ends.

[props2you]

Chorus should buy 51% of the asset. Then suggest to AC that Skyregional is no longer welcome.

[MD2]

Developing a market which most airlines, especially Air Canada, had underserved and neglected, Porter naturally had to invest its own money into building almost all infrastructures. Now is the time to move into a more traditional role and grow the airline, as opposed to being all things. It may have been necessary at first; it no longer is. Airlines are not terminal operators, terminal operators, which by the way do not include Air Canada, Westjet, Jazz, etc., are; and in time there will be one at Toronto's City airport too.

Selling assets to develop the business is common practice, much like someone borrowing against their home to buy a cottage. Whether they do it before or after the full moon or on a Tuesday or Friday (in fact most close on Fridays!!), it doesn't mean they are going to default on their mortgage, rather that after paying down the mortgage and increasing their capital in the property, they want to take advantage of their buying power. Many airlines have done that, including Air Canada that sold most of its assets which is simply one way to raise capital.

[CanadaEH]

Now is the time to move into a more traditional role and grow the airline

No airplanes on order, a C-Series pipe dream, Encore expanding into your backyard, and selling an asset. The timing couldn't be worse.

[DEFCON]

But aren't you preaching a different, but similar theme to that which has been heard now for what, seven years and counting?

[Thebean]

Developing a market which most airlines, especially Air Canada, had underserved and neglected, Porter naturally had to invest its own money into building almost all infrastructures. Now is the time to move into a more traditional role and grow the airline, as opposed to being all things. It may have been necessary at first; it no longer is. Airlines are not terminal operators, terminal operators, which by the way do not include Air Canada, Westjet, Jazz, etc., are; and in time there will be one at Toronto's City airport too.

Selling assets to develop the business is common practice, much like someone borrowing against their home to buy a cottage. Whether they do it before or after the full moon or on a Tuesday or Friday (in fact most close on Fridays!!), it doesn't mean they are going to default on their mortgage, rather that after paying down the mortgage and increasing their capital in the property, they want to take advantage of their buying power. Many airlines have done that, including Air Canada that sold most of its assets which is simply one way to raise capital.

What on earth does AC or even WJ not owning terminal facilities at airports that are open to all operators and operated by LAA's who, with very very few exceptions world wide, do not allow operators to own their terminal facilities, or the fact that many real estate deals close on Fridays have to do with Porter trying to divest itself of its most strategic asset, and sneaking out said news on a Friday afternoon before a long weekend in a very conscious effort to bury the story?

No one thinks "business" on the Labor Day weekend. It's all "back to school" stuff. Every PR hack on the planet knows that.

Don't think for a second that WJ didn't try to obtain ownership, and therefore, control of various terminal facilities in its past. The key is control. The moment you own the sole terminal, you control the sole terminal and nothing happens there without your express permission.

For a business that relies on the control and dominance of BBA, the willingness to lose said control in exchange for some cash now is very, very telling.

WJ didn't sell off its YYC facilities to fund Encore or to launch the 767 program. Why trade a lower ownership cost to a significantly higher cost when you already have stacks of cash in the bank?

The general terms of Porter's construction loan are laid out on page 58 and F15 and note 17 of the prospectus from Porter's failed 2010 IPO attempt, available at sedar.com.

The build cost was about $49m, the construction loan amount outstanding was a little over $25m.

Anyone with a mortgage knows how long it takes to pay off the P&I on a loan. There are some very specific ratios required to keep the loan in good standing. Any ongoing problem with maintaining the ratios would result in the loan being called.

It would not be difficult to reverse engineer a fairly accurate picture of the revenue generated by the terminal facility. Every airport in Canada makes it's airport fees publicly available on line. Take that estimated number, divide it by the rather steep cap rate any buyer will demand to take on the risk and that's going to be the price paid for the facility.

However, one can take a look at page 47 of the prospectus to see airport operations expenses in 2010 with a fleet of 18 aircraft. Extrapolate that to 26 aircraft, without any adjustment for inflation with at least 50% of that expense occurring at the "out stations", not to mention the "customer service costs" , "premium service offerings" nor the cost of the bus shuttle that is included in that cost category. Add a small component for revenues from Air Canada's BBA operation as well as rental income from other tenants and that's the revenue stream available.

Any buyer is going to want a very strong premium to take on that real estate. If Porter goes, the revenue stream dries up and the facility is about as valuable as the terminal at YMX.

Suffice it is to say that the revenue stream at BBA doesn't support a price anything even remotely close to the numbers being thrown around. Subtract what Porter owes the banks and there is even less available to fill the bathtub as the water continues to drain out.

Porter didn't need to sell assets previously to fund growth. What's changed?

Here's what's changed: Need.......cash........now.

[dagger]

Chorus should buy 51% of the asset. Then suggest to AC that Skyregional is no longer welcome.

I think if Chorus did that AC would actually dance a hora, and drop the Island service, then Calin would tell Joe the same thing is happening to Chorus in 2020, and he will happily pee on the grave.

[dagger]

The feds could have reined in the TPA years ago, and now the taxpayers of Canada could be left holding a very large bag. Not the kind of thing for an election year, but I don't know if the Tories have the stones to bail this sucker out. Make no mistake, when the Tories have helped AC in the last few years, someone ended up taking a haircut. Help, even bending pension rules, didn't come for free. But with the TPA and Porter, it's hard to see who would get a haircut. We can assume Porter would be valueless as an investment, but big deal, I'd bet it isn't far from such an outcome now. The terminal is worthless without an airline, and I don't know if AC or WS have even a minuscule fraction of interest in taking any of that over. What? To compete on a larger scale with their own operations, which will soon benefit from Express train service to YYZ? The city won't buy it except to turn it into a national forest - not with this council or any version thereof. Rob Ford could get 100% of the vote in October and he'd still lose most council votes by an overwhelming majority. The city won't be buying airports, or airlines, unless they get it cheap enough to level.

The TPA, a federal entity, can't very well get into the airline business, especially one that loses loads of money. No ideologically possible, there aren't major unions to screw here, the Q400s can be leased to other airlines, but not for a YTZ operation. There are no pensioners to bend over. And there is no smart money that will come to the rescue

Any real estate trust or pension fund that might want to buy the terminal will do its due diligence, which will include looking at the one big operator's books. If they can't see the books, it will only heighten their concern, and if they can also ask the YTZ's other operator what the economics are like trying to operate Q400 service from the Island.

The only thing I can see if Porter goes CCAA is the TPA could turn the island into something entirely different, or basically close the airport and hand the land over to a developer for a mega project, now that the tunnel is being completed. The TPA could get a revenue stream from the developer for the land and use of the tunnel. Maybe a South Sea Seaport or Granville Island kind of thing that represents something different in the city and becomes a "destination". Even that, of course, is going to keep the City Council hopping for years as the left argues for another park - greenspace, greenspace, greenspace.

[Zan Vetter]

Shoulda coulda wish-they-hadda built a hotel co-located with that terminal. As for airlines owning their infrastructure isn't Emirates the only other one in that category (sort of)?

[Super 80]

WSJ suggested asking price of $500M. Revenue is 90% dependant on one customer. And that is a good investment......not. The fire sale has begun. This will probably go as well as the aborted IPO.

Lease back transactions of this type are often part of convoluted US tax sheltering strategies.

[Super 80]

The only thing I can see if Porter goes CCAA is the TPA could turn the island into something entirely different, or basically close the airport and hand the land over to a developer for a mega project, now that the tunnel is being completed. The TPA could get a revenue stream from the developer for the land and use of the tunnel. Maybe a South Sea Seaport or Granville Island kind of thing that represents something different in the city and becomes a "destination". Even that, of course, is going to keep the City Council hopping for years as the left argues for another park - greenspace, greenspace, greenspace.

The TPA couldn't do that if they wanted to. If the airport closes parts of the site will revert to the city, province and Canada Lands.

[Guest longtimer]

The feds could have reined in the TPA years ago, and now the taxpayers of Canada could be left holding a very large bag. Not the kind of thing for an election year, but I don't know if the Tories have the stones to bail this sucker out. Make no mistake, when the Tories have helped AC in the last few years, someone ended up taking a haircut. Help, even bending pension rules, didn't come for free. But with the TPA and Porter, it's hard to see who would get a haircut. We can assume Porter would be valueless as an investment, but big deal, I'd bet it isn't far from such an outcome now. The terminal is worthless without an airline, and I don't know if AC or WS have even a minuscule fraction of interest in taking any of that over. What? To compete on a larger scale with their own operations, which will soon benefit from Express train service to YYZ? The city won't buy it except to turn it into a national forest - not with this council or any version thereof. Rob Ford could get 100% of the vote in October and he'd still lose most council votes by an overwhelming majority. The city won't be buying airports, or airlines, unless they get it cheap enough to level.

The TPA, a federal entity, can't very well get into the airline business, especially one that loses loads of money. No ideologically possible, there aren't major unions to screw here, the Q400s can be leased to other airlines, but not for a YTZ operation. There are no pensioners to bend over. And there is no smart money that will come to the rescue

Any real estate trust or pension fund that might want to buy the terminal will do its due diligence, which will include looking at the one big operator's books. If they can't see the books, it will only heighten their concern, and if they can also ask the YTZ's other operator what the economics are like trying to operate Q400 service from the Island.

The only thing I can see if Porter goes CCAA is the TPA could turn the island into something entirely different, or basically close the airport and hand the land over to a developer for a mega project, now that the tunnel is being completed. The TPA could get a revenue stream from the developer for the land and use of the tunnel. Maybe a South Sea Seaport or Granville Island kind of thing that represents something different in the city and becomes a "destination". Even that, of course, is going to keep the City Council hopping for years as the left argues for another park - greenspace, greenspace, greenspace.

How would the TPA be left holding a "very large bag" if Porter goes under? They would lose the Porter Revenue but that could / would be replaced by another operator, if not then they could sell the land for other development etc. The only way they would be left holding that bag is if they purchased the terminal from Porter or am I missing something?

[MD2]

...The terminal is worthless without an airline, and I don't know if AC or WS have even a minuscule fraction of interest in taking any of that over. What? To compete on a larger scale with their own operations ...

This much is true, very arrogant, but true. Lest the public forgets, Air Canada has said this, Westjet has said this and the only airline that actually has committed itself to City airport and serving the public from this location is Porter. If and when new slots become available, do not cry for more when you have repeatedly shown no interest in longevity of this airport....

[dagger]

This much is true, very arrogant, but true. Lest the public forgets, Air Canada has said this, Westjet has said this and the only airline that actually has committed itself to City airport and serving the public from this location is Porter. If and when new slots become available, do not cry for more when you have repeatedly shown no interest in longevity of this airport....

New slots? Not without an amended tripartite agreement. If jets were allowed on the island, it would be a different economic proposition. hence a different claim on slots. Where there is more demand than supply, slots should be auctioned.

[anonymous]

...Whether they do it before or after the full moon or on a Tuesday or Friday (in fact most close on Fridays!!)...

If you have a real estate agent that suggests closing on a Friday, well, all I can say is you get what you pay for....

No Real Estate lawyer would ever knowingly suggest that. Something goes wrong and guess what....the deal doesn't close or has to wait until the next week.

Closings happen on Tuesday, Wednesday, Thursday. If you know what you're doing.

Clearly, Porter was trying to hide this.

[MD2]

New slots? Not without an amended tripartite agreement. If jets were allowed on the island, it would be a different economic proposition. hence a different claim on slots. Where there is more demand than supply, slots should be auctioned.

Sadly my dear, this is not up to you. Air Canada has repeatedly shown it and you have repeatedly said it that Air Canada's only interest in Toronto City airport is to come in and bankrupt the competition. Why would an airport operator be anxious to give more access to the airline that wants to stifle competition to the detriment of the airport and the travelling public?

[Thebean]

Hello pot. This is kettle calling. You're black.

[anonymous]

I can see an episode of Dragon's Den, with Bob Deluce showing up and asking for $500 mil to sell his terminal....

I wonder what Kevin O'Leary would have to say about his valuation?

[dagger]

Sadly my dear, this is not up to you. Air Canada has repeatedly shown it and you have repeatedly said it that Air Canada's only interest in Toronto City airport is to come in and bankrupt the competition. Why would an airport operator be anxious to give more access to the airline that wants to stifle competition to the detriment of the airport and the travelling public?

The airport has every reason to maximize revenues, and if jets are allowed and it is an economic proposition, that it won't interest other operators. The economic proposition for props at YTZ has never been strong, which is why Porter alone no longer posts monthly traffic stats. But jets might be a different matter. We have to wait and see because the CSeries hasn't accrued sufficient data from test flights to prove it can meet its specs.

[MD2]

Hello pot. This is kettle calling. You're black.

My dear, to help drive the point home, it is plausible for some airlines, not the ones that let their product speak for itself but for some, to want to bankrupt the competition in order to force the public to fly with them and then jack-up the prices, which did happen after the bankruptcy of Canada 3000; but why would an airport operator in any shape of form accept this scenario when it is clearly very short-lived riches?! That is the question, from the perspective of the airport operator...

[IFG]

Hello pot. This is kettle calling. You're black.

Thebean, dagger, Inchman - Why do you keep beating the monopoly drum? What competition is really being kept from BBA? Really, honestly now. And you guys have long been making a very strong case here that Porter is unable to charge compensatory rates. How on earth does that comport with a true monopoly situation?

'Bean, the pot/kettle thing. They (Porter) only look black, you know they're not really (keeping out any credible alternative), but in the analogy, both pot and kettle are black. AC, with C3's and City-'s scalps to show, are more than grey tho' (at least where predation is concerned if not strictly monopoly). Are ya speaking in their voice, or telling us something about WS's practices?

Cheers, IFG

[MD2]

If you have a real estate agent that suggests closing on a Friday, well, all I can say is you get what you pay for....

No Real Estate lawyer would ever knowingly suggest that. Something goes wrong and guess what....the deal doesn't close or has to wait until the next week.

Closings happen on Tuesday, Wednesday, Thursday. If you know what you're doing.

Clearly, Porter was trying to hide this.

My real estate agent usually tells me to try to close on the date that is convenient for me and see what the other party says. Friday, Tuesday, full moon, new moon, rain, shine don't make a difference. I take it this is exactly what Porter did, announced it when it was convenient and necessary for IT, and not being a public company, it don't matter if it's full moon, Tuesday, Friday, long week-end, short week-end, because rest assured those that matter have known this for a while my dear!

But why should you worry about the facts, it's much more fun and exciting to speculate and spread rumours. In fact, my cousin's neighbour's landscaper's barber's soccer teammate's uncle is a very close friend of a cousin of a golf mate of some one really high up at Porter and he heard him say this was it and this time is quite different from the other four hundred and eighty five times that a handful of people have predicted the demise of Porter on this web site and therefore you must be right...Porter was trying to hide this but you called it ace!

[Guest longtimer]

Earlier I had posted info about Porters 50% off one day sale, just got an email alerting me to their 60% off sale that requires booking by Sept. 09. Are we seeing a "cash" shortage or did this deep discount sale happen at the same time last year?

https://www.flyporter.com/Special-Offers/Website_Savings?culture=en-CA&origin=YTZ&utm_source=Responsys&utm_medium=MarketingEmail&utm_campaign=20140902_60OFF_Personalized

One-way flights from Toronto to:

Sudbury

$ 91 CAD

includes all taxes/fees

Windsor

$ 91 CAD

includes all taxes/fees

Ottawa

$ 99 CAD

includes all taxes/fees

Montréal

$ 101 CAD

includes all taxes/fees

Timmins

$ 101 CAD

includes all taxes/fees

Sault Ste. Marie

$ 101 CAD

includes all taxes/fees

Mont Tremblant

$ 127 CAD

includes all taxes/fees

Québec City

$ 128 CAD

includes all taxes/fees

Thunder Bay

$ 145 CAD

includes all taxes/fees

New York

$ 151 CAD

includes all taxes/fees

Washington

$ 156 CAD

includes all taxes/fees

Chicago

$ 160 CAD

includes all taxes/fees

Boston

$ 160 CAD

includes all taxes/fees

Moncton

$ 161 CAD

includes all taxes/fees

Halifax

$ 175 CAD

includes all taxes/fees

St. John's

$ 205 CAD

includes all taxes/fees

[Mitch Cronin]

"the other four hundred and eighty five times"

...You sure that's all? .... seems like more somehow?

[Thebean]

To paraphrase a quote from Hamlet, MD2 doth protest too much, methinks.

You don't have to convince me of the supposed benign, "business as usual" reasons for selling off one of the few liquid assets remaining in Porter's portfolio combined with the latest fire sale of forward inventory, this time, out to Feb 11 2015. How much do you want to bet ALL of Porter's cash reserves currently consist of unearned revenue?

Judging by the stuff I saw flying around on the weekend and this morning, you're gonna have to convince Bay Street and increasingly "the man on the street". Bay St and the investment community seems to smell blood in the streets given the nice bump AC and esp WJA have enjoyed thus far today.

Interestingly, I had a chat with my 81 year old dad who lives in a seniors facility in an eastern triangle city on the weekend.

Out of blue, he told me one of the topics of discussion at their "Business Roundtable" on Saturday was why Porter would be selling their terminal on Toronto Island. He told me the old boys, (mostly senior diplomats and military types with a few guys who did fairly well in the private sector) all came to the same conclusion. Porter is in trouble.

This is where the "death by a thousand paper cuts" kicks in and is precisely why Porter made sure the story was buried in a the weekend papers to minimize exposure and any acceleration of negative sentiment.

For the record, my dad took Porter to Washington to attend an antique show in Baltimore a few weeks ago and enjoyed his flight. He booked well in advance and said he paid "virtually nothing" which, he figured, was part of Porter's problem. It was his first time on Porter. Like most, he said that whenever he has looked at booking Porter, he has not had the luxury of 14 days advance booking and the prices have been prohibitively expensive.

That, of course, will change quite dramatically over the next 18 months.