WestJet buyout: From rewards to travel plans, what to know about Onex’s $5B deal

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WATCH: Calgary based Westjet has been purchased by Onex Corporation in a multi-billion dollar deal. Heather Yourex-West reports – May 13, 2019

WestJet, one of Canada’s largest airlines, has signed a $5 billion deal to be bought out by the investment company Onex.

READ MORE: WestJet to be sold in friendly deal to Onex Corp. for $5 billion

The airline started off as a regional low-cost carrier when it debuted it 1996, and has grown into a competitive international airline, rivalling Canada’s largest carrier, Air Canada.

And now Onex wants a piece of that aviation pie. But what does the potential buyout mean for the future of the company and Canadian travellers?

Who is Onex?

Founded in 1984, Onex is a Toronto-based private equity firm that has invested in a number of companies, such as Cineplex, Husky and Impark.

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Its website says it has $31 billion of assets under management.

“Onex is a very impressive investment firm,” Karl Moore, airline analyst and associate professor at McGill University’s business school, said. “They are one of Canada’s largest [equity firms] and know what they are doing. They are also very knowledgeable of the airline industry.”

This is not the first time the company has dabbled in the aviation industry. In 1999, Onex unsuccessfully tried to buy and merge Air Canada and Canada Airlines in a $2.4 billion hostile bid.

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However, a Quebec Superior Court ruled the buyout illegal, as no more than 10 per cent of the company can be controlled by a single shareholder. Onex then withdrew its offer. Air Canada then successfully merged with Canadian Airlines without Onex’s involvement.

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In 2005, Onex bought Spirit AeroSystems from Boeing. It exited its investment in 2014, having made $3.2 billion.

Onex also failed in its effort in 2007 as part of a consortium to buy Australia’s Qantas Airways.

Why does Onex want to buy WestJet?

Onex approached WestJet in March 2019 with the buyout offer. After numerous meetings, the WestJet board of directors determined the deal was in the best interests of the company and recommended that shareholders vote in favour of the transaction (expected in July 2019), according to a press release.

According to Bloomberg, the WestJet deal ranks among the biggest for Onex over the past decade.

“Onex has been following the aviation industry for years, and clearly they see it as an opportunity to make money,” Moore said. “This is what the company does, they see an investment opportunity that will pay off for them.”

READ MORE: WestJet cutting flights in a bid to reverse first loss in 13 years

Moore said the CEO of WestJet has done a “great job” building the company to compete in the international market, and share prices have gone up as a result. But they still may be undervalued.

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“Onex wants to buy a company when they see share prices are undervalued,” he explained, which may be part of the reason the investment firm did not approach Air Canada.

“Air Canada’s share prices are more reasonably valued so there’s not as much room to grow,” he said.

Initial news of the buyout sent WestJet stocks up 61 per cent in mid-morning trading Monday, from $18.52 to $29.75.

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Tawfiq Popatia, a managing director at Onex, called WestJet one of Canada’s strongest brands, “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,” he said in a statement.

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What does this mean for consumers?

The WestJet rewards program will continue on “business as usual,” WestJet spokesperson, Lauren Stewart told Global News.

“WestJet will continue to maintain our frequent flyer program and credit card partnership,” she said.

WestJet and its low-cost carrier, Swoop also remains in place, she said, adding that the buyout will not impact customers who have bought tickets or want to book future flights.

The airline will continue to be headquartered in Calgary.

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Moore said the tentative buyout is “good for Canadians,” as it means WestJet is now more competitive with Air Canada.

“The company will now continue to grow internationally with more ‘oomph’ behind it,” he said.

Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc., agreed.

“Onex has very deep pockets… if that means WestJet growing faster internationally, acquiring more long-haul fleets to fly abroad, those are good things and that will create a positive pricing environment for consumers.”

When will the deal close?

Completion of the transaction is subject to a number of conditions, including court, regulatory and shareholder approvals. The deal is expected to close in the latter part of 2019 or early 2020.

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— With files from the Canadian Press

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