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Porter Looking To Sell, Lease Back Toronto Island Terminal


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I have no idea if Porter is currently in trouble and I haven't spoken to Deluce or anyone else there in years.

But there is an insatiable demand for this type of asset for lease based tax structures. In Europe they are called "Money for Nothing" deals. And if presented with one you would be stupid not to take it.

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It'll be interesting to see what happens. Should Porter sell the terminal, they'll be a debt free airline which ought to cause a whole lot more angst for AC & WJ.

Maybe but they will still have a questionable business model and an airport authority that is not invested in keeping it a monopoly...

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It'll be interesting to see what happens. Should Porter sell the terminal, they'll be a debt free airline which ought to cause a whole lot more angst for AC & WJ.

They began the day with a significant amount of shareholder capital. The business plan has never made sense to those who know the operating economics of the Q400 in a mainline type setup (as opposed to an airline that might be able to charge very high captive pricing in a rural or remote setting). If they have burned through their investor capital, and have to start leasing their Toronto terminal they will burn through the sale proceeds at an even faster rate.

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I appreciate the counter-arguments, but we've got to keep in mind, there are a number of ways to skin a cat. Let's suppose for instance that Deluce sells on terms that provide for X amount of cash at the time of sale and some form of preferred costing for gates etc., or even say, $100M worth of freebies? If he is able to sell that terminal for anything close to $500M, I think it'll provide Porter with a competitive edge that'll be the equalizer to the mainlines ability to market what are effectively, lost leaders.

I can hear the 'how David beat-up Goliath' analogies coming from the various 'schools of business' already.

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Would you pay $500m for a building that is on Porter's books for about $30m, with a replacement cost not much more than that?

If you were going to pay $500,000,000 for a building, what sort of annual return would you want to see off that asset?

Would you accept 5% return given the risk exposure? I doubt it.....

If the lead tenant had clearly and firmly established the long term viability of its business, or the risk was spread around 3-4 tenants of equal size, anyone of which would be able to takeover should another tenant fail, the expected return might be in the 7-8% range these days. We're not talking about a Class A office tower at Yonge and Bloor full of triple A covenant leases here, gang.

In Porter's case, the expected return would be at least 10% and likely slightly north of that, compared to the current debt service rate of "the lenders floating base rate + 2.00%" on the $30m loan. That means the building would have to throw off $50m after all operating expenses, property taxes, land leases and debt service are taken care of. I don't know what it costs to run a facility built on 629,000 sf. or about 14 acres of land, but it isn't going to cheap. The operating costs and taxes on the finished building alone would likely run at least $15 psf these days.

Any sale would result in a considerable increase in Porter's unit cost structure, which is already pretty high to begin with.

There's far too much risk associated with owning an asset that would be worth virtually nothing if the lead tenant, who directly and indirectly generates 85% of the rental income, disappeared overnight.

If you can present a compelling case as to how Porter and Air Canada's current operations, which amount to about 32,000 departures annually, with Porter basically responsible for 85% of those departures, could generate an operating profit of $50m a year in order to support a $500m purchase price for the prospective purchaser, please, do share.

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Bean

I presume your questions are directed at me. The news of the terminal took me by surprise too. I cannot make a case for Porter's business activities in any respect; I just think it's kind of interesting to watch as Deluce continues to introduce & implement strategies that appear to confound the conventionally orientated logic meters of the two big mainline supporters, yourself & Dagger. Personally speaking, I have no particular allegiance to Porter, I'd just like to see them do well in the niche market Milton abandoned so long ago.

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I can think of a very profitable business that might want to look at the facility as a way of dealing with it's tax issues....

Things must be very tight in Porterland to even consider giving up control of the most strategic asset it has on its books.

He who has the gold makes he rules. Should Porter sell the building, they become a tenant, nothing more and nothing less. The new owner can cut whatever sweatheart deal they like, as long as it generates the sort of return the buyer, or the buyers shareholders, expect from their investment.

No matter how you cut it, this is a very expensive source of capital for Porter.

It would be far, far cheaper to raise capital via an IPO, however, we all know why that isn't an option....

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Interesting news on a point that's been mentioned in this thread:

Concerns are being raised once again about the amount TransLink executives are getting paid, following the the release of documents showing many got significant hikes last year.

Ian Jarvis, CEO of TransLink, received $83,700 in bonuses in 2013, making his total compensation for the year $468,015, a rise of almost seven per cent over 2012, according to salary disclosure documentsreleased by the transit organization late Friday.

And Jarvis was not the only TransLink executive to find more in their pay cheques in 2013, with the head of SkyTrain, Fred Cummings, and bus company president, Hadyn Acheson, along with four other department heads, all making significantly more in compensation for the year.

Jordan Bateman, director of the Canadian Taxpayers Federation B.C., told CBC News it was significant that the disclosure—usually made public in June or July—was released just before the holiday weekend on a day dominated by news of the B.C. teachers' strike.

http://www.cbc.ca/news/canada/british-columbia/translink-bonuses-executive-salaries-draw-criticism-1.2753332

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I think it's pretty much day 1 of PR school.

Monday is for political/boilerplate releases. Good financial news (that moves stock) doesn't come out Mondays because people do meetings that day, I guess. Just an observation. Midweek the markets are in full swing, break good news in order of Tues, Wed, Thu, and bad news on Friday. Friday before a long weekend or holiday is for the stuff you pray is going to get buried.

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Port authority launches $3 million in studies for jets

Toronto Port Authority insists it is taking no position on Porter Airlines' proposed jet expansion, but says studies will provide key information.

Wed Sep 03, 2014 - Toronto Star
Vanessa Lu - Business Reporter

The Toronto Port Authority insists it is taking no position on Porter Airlines’ proposed jet expansion at the Toronto island airport, even though it is spending $3 million on a series of key studies.

That was the message port authority CEO Geoff Wilson delivered during the federal agency’s annual general meeting on Wednesday, where he was peppered with questions about Porter’s proposal, engine noise and traffic congestion near the airport.

City council has deferred any decision on whether to allow Bombardier’s CSeries jets to fly out of Billy Bishop airport until next year, but in the meantime the port authority is moving ahead with an environmental assessment, preliminary runway design study and airport master plans.

The port authority is footing the bill for the studies, estimated at $1.25 million for the environmental assessment, $1.5 million for the runway design and $250,000 for master plans, though costs could increase once work begins.

“This is work that can and should be done so that city council would have all the information they need,” said Wilson in an interview after the meeting. “They want to see an EA and the runway design. It’s the responsible thing to do.”

Any move to allow jets would require the approval of the city, the port authority and Transport Canada.

"While some speculate the sale is related to Porter’s need for capital, Cicero dismissed that notion, saying opponents have raised questions about the airline’s financial sustainability since 2006.
“Eight years later, here we are. We intend to be here for the long term,”


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Porter cannot likely sell its terminal without an extension of its lease from the TPA of the ground on which the terminal was built.

That lease,which provides for rent of one dollar per passenger ends when the tripartite agreement ends - in 2033.

Would a purchaser be able to recoup its investment?

Highly unlikely - the normal rule is that,upon expiry of a ground lease, any building built on that ground becomes the landlord's property without compensation. That makes it a depreciating asset over 19 years, not an appreciating one.

No purchaser would pay much at all for a building they would not own after 19 years.

This may well be why the TPA has already asked, in its wishlist delivered to Mayor Ford on February 13, 2013 (see the letter on the TPA website: http://www.torontoport.com/About-TPA/Media-Room/Executive-Correspondence.aspx) , for a 50-year extension, to 2083.

That request was not taken seriously by the City.

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  • 3 weeks later...

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Porter CEO says sale of Toronto airport passenger terminal is ‘alternative to IPO’


Thu Sep 25, 2014 - Financial Post
Kristine Owram

Porter Airlines’ CEO says the decision to sell the passenger terminal at Toronto’s city centre airport is an alternative to going public as the company continues to hunt for new sources of capital more than four years after shelving plans for an initial public offering.

“It’s an alternative to doing an IPO, if you will,” Porter CEO Bob Deluce said in an interview with the Financial Post.

“We did look at an IPO a few years back, but this is really a good option in terms of an alternative to an IPO.”

Porter said last month it is searching for buyers for the terminal at Billy Bishop Airport, located on Toronto Islands near the city’s downtown.

The airline built the terminal prior to its launch in 2006 and has operated it ever since. It’s won accolades from passengers for its comfortable layout and perks like free coffee and cookies. But Mr. Deluce says he’d prefer to find an experienced private-sector company to operate it.

“I think there are some advantages to us now doing, with the appropriate person or with the appropriate firm, a sale-leaseback and getting back to just focusing on the airline,” he said.

Porter, being privately owned, doesn’t release its financial results, but Mr. Deluce says the airline is profitable. However, with a major expansion plan in the works it’s looking for new sources of capital.

'The company attempted an IPO in 2010 but scrapped plans before they came to fruition, citing unstable markets.'

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when it rains....

Porter Airlines’ baggage handlers join Unifor

Thu Sep. 25, 2014 - Globe and Mail
Greg Keenan - Airline Industry Reporter

Baggage handlers at Porter Airlines Inc. have agreed to join Unifor, marking a major win for Canada’s largest private-sector union, but potentially loading the mainly non-union airline with higher labour costs as it faces growing competition.

About 80 Porter baggage handlers have agreed to join Unifor, the union created last year by the merger of the Canadian Auto Workers and the Communications, Energy and Paperworkers Union of Canada.

Unifor was certified as the bargaining agent for the employees by the Canada Industrial Relations Board earlier this week.

“It’s huge,” said Unifor president Jerry Dias, who has made enlarging the union through organizing drives at Porter, Toyota Motor Manufacturing Canada Inc. and other non-union or mostly non-union companies a key priority since he became the first president of the merged union.

The union mounted a six-month organizing drive, Mr. Dias said Thursday. “We had an organizing drive years ago that went nowhere,” he said.

The next step for the union will be to sign a first contract with privately-owned Porter, which is coming under increasing competitive pressure.

“We are continuing with business as usual,” Porter spokesman Brad Cicero said Thursday. “At the appropriate time, management and the union will meet to start negotiations toward a first collective agreement.”

WestJet Airlines Ltd., a non-union carrier, has recently expanded its lower-cost Encore service to Central and Eastern Canada.

The Encore service uses the same Q400 turboprop airplanes Porter uses to fly passengers in the Toronto-Montreal-Ottawa triangle as well as to other Ontario, Quebec and Atlantic Canada destinations and select U.S. cities.

Porter is mainly non-union. A small local of the Canadian Office and Professional Employees union represents refuellers at the Billy Bishop airport on the Toronto islands where Porter operates.

The airline’s baggage handlers are paid between $12 and $16 an hour. Average wages in the airline sector as a whole are about $24 an hour, according to a Unifor position paper on the industry.

In a 2010 prospectus for an initial public offering of shares that was later pulled, Porter said wages and salaries represented about 21 per cent of its costs.

“Porter endeavours to control its costs by maintaining a high level of efficiency in respect of its employment and labour resources,”

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The airline’s baggage handlers are paid between $12 and $16 an hour. Average wages in the airline sector as a whole are about $24 an hour, according to a Unifor position paper on the industry.

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Say what?? Not for baggage compressors it's not.

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@Seeker

I think the actual TAC guys in YYC and YMM top out at less than 20/hour. With ESP and profit share there is the opportunity to create a bit more wealth.

It varies across the country from there. The unionized ground handlers are not matching AC handler wages at the top end.

Thanks, Chock, TAC is the ground handler in YYC and YMM? I thought most of the stations were non-union, is that incorrect?

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