Billionaire Schwartz finally lands an airline with WestJet

Bloomberg

Nearly 20 years after abandoning his hostile bid for Air Canada, Gerry Schwartz finally got his airline by agreeing to buy WestJet Airlines Ltd for C$3.5 billion ($2.6 billion).
Schwartz’s private equity firm Onex Corp agreed to pay cash for Canada’s second-biggest carrier, and plans to take the company private in one of the buyout firm’s biggest deals. Onex offered C$31 a share, a 67 percent premium to the airline’s closing price on May 10. The acquisition is valued at C$5 billion including debt, Toronto-based Onex said.
“This doesn’t represent any big strategic pivot or transformational change for the company — we really invested in an existing team, an existing culture and an existing plan,” Tawfiq Popatia, a managing director at Onex, said in an interview.
It’s the first major leveraged buyout of an airline since 1989 when Northwest Airlines was purchased by an investor group that took it private.
Apollo Global Management acquired Sun Country Airlines Inc. two years ago in a smaller leveraged buyout.
For Onex, the friendly deal gives the private equity firm the airline it has long sought, after making several investments in the aerospace sector, including Spirit AeroSystems Holdings Inc. The firm tried to acquire Air Canada and merge it with Canadian Airlines in 1999.
The C$2.4 billion hostile bid, with financial backing from AMR Corp’s American Airlines, was eventually abandoned after an unfavourable court ruling. Onex was also part of a group that failed to buy Australia’s Qantas Airways Ltd in 2007.

Strong Brands
“Onex is a very aviation-focussed fund so they know the space,” said George Ferguson, a Bloomberg Intelligence analyst.
“WestJet is looking for growth, which will be hard to find inside Canada as the market is relatively small.”
The surprise move comes as competition heats up in the Canadian airline sector, with several discount carriers entering the space. The sale also follows an announcement last month that tour operator Transat AT Inc is seeking a potential sale.
Onex has no intention of using WestJet as a consolidator in the Canadian airline industry, Popatia said, adding that the private equity firm is not one of the potential suitors for Transat.
“This company is really the best at what it does. There are not a lot of brands like this in consumer-facing industries – not just in Canada — anywhere,” he said. “That brand is a source of competitive advantage.”
WestJet suspended all financial guidance for the year due to the grounding of the Boeing Co 737 Max. Chief Executive Officer Edward Sims has said there are no planned changes to any Boeing orders or deliveries. WestJet expects the 737 Max to be back in service in the second half of this year, Sims said in an interview with BNN Bloomberg TV.
Sims said he saw the Onex acquisition as an investment in WestJet’s current strategy. “What I like is the ability to actually think long-term,” he said in an interview, noting that working as a private company will allow WestJet to focus on implementing its strategic initiatives without having to report on their progress every quarter.
“What I really like from a sell perspective — from the WestJet perspective — is working with a like-minded partner who sees the value that we have always seen in the strategic direction we are taking,” Sims said.
WestJet’s earnings have come under pressure in recent years with the launch of several lower cost airlines in the country. WestJet has tried to capture some of that market itself with the launch of its own ultra-low cost carrier, Swoop. At the same time, it has expanded its offerings primarily to Europe with a fleet of Boeing 787s.