WestJet takes a $5 billion buyout from Onex

Toronto-based Onex corporation will spend $5 billion to acquire WestJet. The deal, announced this morning, will see few changes initially at the airline, other than the new owners. It also comes at a ~67%premium to the share trading price from Friday’s close making it a great deal for existing shareholders. The deal is subject to regulatory approval and is expected to close in late 2019 or early 2020.

WestJet is one of Canada’s strongest brands and we have tremendous respect for the business that Clive Beddoe and all WestJetters have built over the years. WestJet is renowned internationally for its unparalleled guest experience and employee culture. We’re thrilled to be partnering with WestJetters and continuing this remarkable Canadian success story.

– Tawfiq Popatia, a Managing Director at Onex.

The company will continue to be headquartered in Calgary, ensuring some job stability for the thousands of WestJetters working there. It does not appear that significant structural changes are on the books with the new ownership. WestJet is in a growth phase, adding significant new capacity and aircraft types into the fleet as well as transitioning to a more full-service business model. Its Swoop subsidiary is also showing reasonable growth numbers. Ultimately the long-term cycles of such expansion is likely better suited to a private equity position than public ownership.

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Smoothing the edges

Very little in the global commercial aviation world can be adjusted successfully in three month increments. Fleet planning, route development and passenger experience changes all require a long-term view of the market and commitment to see an investment through. With a publicly traded stock the company must report quarterly rather than focusing on the longer term goals. Given WestJet’s position, with the new 787s in the fleet and the 737 MAX makeover (once they’re no longer grounded, of course), a longer term outlook will be useful for helping to drive success.

Read More: WestJet Dreams of Europe: Initial 787-9 routes announced

As part of the transition the carrier is expanding into global markets. WestJet initially teased Asia as its goal for the new Dreamliner fleet before pulling back to a European focus for its introduction this year. Just last week CEO Ed Sims suggested that the Asia growth was back on the table, with discussions around partnerships to get there. Having some cushion and time to build those markets gives the carrier a chance to succeed.

Similarly, the 737 MAX fleet is seeing its cabins updated to add the premium seats the carrier needs to make its long-haul premium product more compelling for connecting travelers. That work is being performed while the aircraft are grounded pending a software update from Boeing to resolve control issues tied to the crashes of Ethiopian 302 and Lion Air 610.

Read More: Swoop: A marketing machine that happens to fly planes

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An Aviation History

Onex’s aerospace experience, history of positive employee relations and long-term orientation makes it an ideal partner for WestJetters, and I am excited about our future.

– Clive Beddoe, WestJet’s Founder and Chairman

WestJet called attention to the history of aviation involvement from Onex in announcing the deal, attempting to make it clear that the new owners have the necessary experience to play in this unique market. Not all of those plays were successful, but the potential for a vertical integration remains an interesting option.

Read More: WestJet unveils 787 interior, flat-bed business class offering

Onex tried to buy and merge Air Canada and Canadian Airlines 20 years ago. It also invested heavily in the Raytheon Aircraft business, forming Hawker Beechcraft that went bankrupt five years later. The company also has seen some successes in the space. Onex bought the Boeing manufacturing facilities in Kansas and Oklahoma, eventually forming Spirit AeroSystems, the company behind every 737 fuselage produced. That has since been floated back to the public, earning Onex a tidy profit.

Onex also owns a sizable stake in the aircraft leasing groups BBAM and FLY Leasing. Having its own financing arm available to help with aircraft purchases and fleet adjustments could prove beneficial for all involved.