Westjet

[Bobcaygeon]

Is there a reason this is his 3rd attempt to purchase an airlines and the other 2 attempts failed? ego driving airline purchases??

ONEX has already been in business with Westjet for awhile. They own one of the leasing companies that Westjet works with... I'd say its pretty likely that a few NDA's were signed during regular business dealings and then a few rounds of drinks started the conversation.

 

Hopefully it doesn't end up like my time with my ex-wife. That started with a few rounds of drinks that turned out to be a lot pricier than I ever imagined.

[Critter]

To be fair, the reasons for these failed acquisitions were out of ONEX’s control (Quebec courts for example).

AND....I don’t think ONEX shed many tears after they made a killing on the increase in share price. Just another money making day in the equity fund world.

Yes, this could go many different ways. But some of those ways spell a success story for WestJet and it’s employees.

 

[MD2]

In spite of the usual biased remarks, the WestJet/Onex deal will prove very successful. Will not be surprising to see a new face join Onex BoD either. In time, WestJet long haul program, Swoop, vacations and loyalty program will be the focus of rapid growth in making WestJet even a stronger brand. Loyalty alone could be worth almost 5 billions!

AC's hasty offer to buy Transat was because it thought WestJet was going to do it; or was it??!! Corporate acquisition chess game is never what it seems! With such large market shares for each carrier over the Atlantic and sun destinations, it is unlikely that the AC deal will pass the competition bureau's probe.  Won't be surprising then if Transat goes back to WestJet to renew the talks! With such deep pockets and as a private owner, Onex will have much latitude in making WestJet aspirations in becoming a global carrier a reality in a relatively short time.

 

[Lakelad]

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When the disruptor becomes what it was trying to disrupt: Lessons from WestJet's corporate flight path

Martin Pelletier: Canada needs to end this typical business success lifecycle

Tue May 21, 2019 - Financial Post
by Martin Pelletier

It was a big week in the Canadian airline industry, starting with Onex Corp.’s agreement to acquire WestJet Airlines Ltd. for $3.5 billion, followed by Air Canada’s announcement that it has entered into exclusive talks to buy Transat A.T. Inc. for approximately $520 million.

There are a few important takeaways from the WestJet story that are representative of our overall business environment and the typical lifecycle of a Canadian success story.

It usually begins with a new entrant that has identified a low-cost, high-quality opportunity to disrupt an entrenched incumbent that has become accustomed to operating within a highly regulated and protected industry. Initial growth can be quite rapid as consumers jump on board this exciting new service offering, but over time, unfortunately, it often ends with the disruptor slowly turning into what it was trying to disrupt in the first place.

The reason: there is limited foreign capital willing to backstop what could be a nasty fight for market share among a few incumbents, or for funding a global expansion, especially when the company has disconnected with the disruptive culture it was founded upon.

As a result, financial results can only disappoint for so long before the white flag is raised via a monetization event involving one of the other incumbents or, in this particular case, a Canadian private-equity investor eagerly looking to enter the industry.

Taking a closer look at WestJet, it hit the ground running out of the gate by fostering a Western Canadian entrepreneurial culture from the ground up and directing it towards disrupting what has historically been one of the most difficult sectors to break into: the airline industry.

This meant undertaking a non-unionized, employee-empowered and customer-focused approach to doing business. Employees were also early shareholders and, therefore, acted like owners in their interactions with passengers as well as in keeping costs under control. It was a beautiful thing to watch.

This flight path worked amazingly well as consumers immediately flocked to this exciting new upstart. Following its launch in 1996, WestJet grew to employ more than 14,000 people, have a fleet of over 180 planes and fly to 100-plus global destinations. It also managed to grab 35 per cent of the domestic capacity market share, taking Air Canada down to approximately 50 per cent. Its international capacity market share increased to approximately 15 per cent, or half that of Air Canada’s position, according to industry researcher CAPA — Centre for Aviation.

Then something happened.

Having already captured a large share of the domestic low-cost travel market, the company appeared to hit a wall. Its growth profile was unable to effectively steal market share in other segments (international and trans-border bookings) from Air Canada and its strong loyalty program.

Meanwhile, rising costs resulted in margin compression and WestJet’s earnings before income taxes and return on invested capital, which peaked in 2015, have tumbled along with its share price.

For example, despite the recent takeover offer at a 67-per-cent premium, the company’s share price is still only up 25 per cent over the past five years compared to the near 400-per-cent gain by Air Canada. As a side note, Transat’s return profile looks an awful lot like WestJet’s, as it, too, is only up 38 per cent over the same period.

This evolution really isn’t that unusual. We’ve witnessed the same story unfold in other oligopoly sectors such as wealth management, banking and wireless. That said, Canada needs to end this cycle if we want to start attracting foreign capital as well as become the launching pad for homegrown globally disruptive corporations to start taking off.

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[Airband]

Quote

'What does Onex do next? For one thing, once the firm owns an international carrier operating a range of aircraft types, it could try to acquire Porter Airlines and merge it with WestJet. Onex has plenty of available capital to finance such a transaction. Porter’s aircraft would also fit well into the WestJet fleet. A deal like this would play to Onex’s analytic strengths. It would tuck in some attractive routes both domestically and internationally and remove one potential acquisition candidate from the already thin roster facing foreign buyers.

Suitably bulked up, Onex could then move to harvest mode. In practice, this would mean securing an agreement to sell the entire operation to a U.S. carrier looking for growth – which is all of the U.S. majors. The WestJet acquisition will cost Onex about US$3.5-billion at today’s exchange rate. Futures market values suggest that there won’t be much movement in the Canadian-U.S. dollar exchange rate within the next few years.

There is little question the major U.S. carriers have the financial capacity to do a WestJet purchase at a price significantly higher than what Onex is paying. According to the latest 10Q filings, Southwest Airlines is sitting on several billion in current assets, of which US$3.8-billion are cash or short-term instruments. American Airlines and United Airlines are in a slightly better position, and Delta is a bit worse off, having a higher amount of receivables. It is hard to believe that any of the four would be refused additional borrowing in a capital market awash with liquidity.

From the perspective of some U.S. carriers, the strategic logic of an acquisition seems unassailable. Delta already has a codeshare agreement with WestJet and the two have agreed to an unspecified joint venture. But American Airlines’ partnership with WestJet ended in 2018, so it has no alliance-based presence in Canada. As United is partnered with Air Canada through the Star Alliance, an acquisition would present some thorny competitive issues.

Taking United out of the equation, Delta seems to be the logical buyer, given the advanced state of its existing business relationship with WestJet. But buying WestJet from Onex would enable American Airlines to stymie Delta, open a presently protected market for the Oneworld alliance and secure a large share of cross-border traffic in one move.'

'Onex is making more headway with WestJet purchase than its bid for Air Canada 20 years ago'

[j.k.]

1 hour ago, Airband said:

'Onex is making more headway with WestJet purchase than its bid for Air Canada 20 years ago'

I think Douglas Reid has been spending too much of his career on Academia Island shooting spitballs and seeing what sticks...

Buying Porter for its attractive domestic and international routes?

Westjet being 100% bought by Southwest?

A provincial premier having a say in a 100% sale to an American carrier?

None of these things will happen. Doubly so on sale to Southwest... Exponentially so on a provincial approval mattering on a majority sale to a foreign owner... it isn't their jurisdiction... and it isn't going to go above 49% for a long time, if ever, and even then, certainly not as an exception for an already established player... and certainly not in Onex's timeline for this investment.

[MD2]

The Onex deal very likely would have been better for the industry, consumers, and Canadian Airlines (which would have included Air Canada), because it wasn't so leveraged. But it had a problem, it didn't include Milton and his team!

Onex made another attempt in acquiring a major airline, but to their credit, they were disciplined in not overpaying in a multiple offer frenzy. With WestJet, they seem to have taken all the right steps and it is a cooperative deal, and frankly for anything under $40, it is a bargain and leaves lots of room for cash infusion for further expansion.