Onex Expects WestJet IPO in Two Years After Scoring Big Gains

A WestJet plane at Victoria International Airport in Victoria, Canada. Photo by James MacDonald /Source: Bloomberg

Article content

(Bloomberg) — Investment firm Onex Corp. expects to publicly list WestJet in the near future after it completed the sale of a 25% stake in the carrier to three other airlines to lock in a significant profit.

Article content

“An IPO would be a natural next step because airlines are very large, capital-hungry enterprises,” Tawfiq Popatia, head of Onex Partners, the firm’s flagship private equity unit, said in an interview. “I think that would be a natural thing to expect in a couple of years.” 

Article content

Article content

Article content

Onex closed a deal this week that makes Delta Air Lines Inc. a 12.7% owner of WestJet, while Korean Air Lines Co. will have 10% and Air France-KLM 2.3%. For Onex, the transaction means it has now received back all of the capital it put into Canada’s second-largest airline, while keeping 75% of the business.

Article content

Article content

Since taking WestJet private nearly six years ago, Onex has transformed it, poaching a key executive from Deutsche Lufthansa AG who cut unprofitable short-haul flights in eastern Canada to focus on the western provinces and selling Canadians warm-weather vacations during the freezing winters. 

Article content

As part of its strategy, the airline has big plans for Calgary, its home city — taking advantage of the rapid growth of Alberta, Canada’s wealthiest province. WestJet has also started new routes to cities in Asia, Europe and the Americas, and it’s considering others.

Article content

It has been an ambitious, and profitable, overhaul of the business, Popatia said. “We really spotted something in WestJet that was interesting to us.”

Article content

Calgary Connection

Article content

Onex has been an investor in the aerospace sector since its early years under founder Gerry Schwartz, holding stakes in businesses such as Spirit AeroSystems and airline catering company Sky Chefs. In the late 1990s, the firm made an audacious attempt to take over Air Canada and merge it with a failing Canadian Airlines, but it couldn’t get the deal done. It currently owns a part of the aircraft leasing firm BBAM LLC. 

Article content

Article content

The Toronto-based asset manager took WestJet private in 2019 for C$3.5 billion ($2.5 billion), just weeks before the Covid-19 pandemic brought the global airline industry to a near-halt.

Article content

During that period, WestJet took a number of measures to raise cash — improving its loyalty program, renegotiating a credit card partnership that accompanies it and doing sale-and-leaseback deals for aircraft. “We just got our resting heart rate down to virtually zero and we managed cash burn very effectively,” Popatia said, allowing WestJet to get through the pandemic without raising equity or taking state aid. 

Article content

In February 2022, as the pandemic was finally easing, Lufthansa veteran Alexis von Hoensbroech joined as chief executive officer. The executive saw an opportunity to turn around WestJet by making bigger bets on western Canadian airports such as Calgary, Edmonton and Winnipeg, where it has a competitive advantage. That meant pulling back from the Montreal-Toronto-Ottawa triangle, where competition from Air Canada and Porter Airlines is fierce.   

Article content

“Our industry is an industry where you are successful if you’re actually leading in a certain segment,” von Hoensbroech said in an interview. The former CEO of Austrian Airlines also built the company’s position in tourism with the acquisition of Sunwing, an airline and travel package seller.