Conversely, why does Alaska own Horizon? Why does American own Envoy, Piedmont, and PSA? Why does Delta own Endeavor? Why did AC buy a chunk of Chorus? The trend in North American regionals is the opposite of what you're claiming: the majors are buying their feeders to have more control over them and use them as suppliers of pilots.
Quite right. No one has actually presented a business case for selling Encore, other than "AC sold Jazz, so WestJet will do it too!" It's not a good comparison at all, as I pointed out previously; it was in the shadow of the merger and 9/11, and the primary reason Jazz existed in the first place is that it was a merger of all of AC's and CA's regionals, not a new entity created by the airline. When Jazz was spun off, AC was desperate for every bit of petty cash they could muster, and Robert Milton might not even have thought that AC was going to survive. Also, AC retained control of Jazz Air Income Fund for several years.North Shore wrote: ↑Mon May 13, 2019 9:37 pm I can’t see how selling off Encore (even with a CPA) makes sense? Part of their recruitment draw is the One List - without that, then salaries are going to have to go up to attract and keep people. Keep the one list, and sell Encore leads to huge training bills at the subsidiary...where’s the upside?
If Onex sells off Encore for, say $100 million, and then pays out $20 million per year in the CPA, they'll make a small lump sum initially and lose more over the long term; if they retain Encore, that $20 million/year stays within the group of companies. If they're willing to drop $3.5 billion in cash and take on $1.5 billion in debt, I doubt they much care about a one-time payment of $0.1 billion, and I don't even know if Encore would be worth that much; their assets are 47 used Q400s, which aren't exactly flying off the shelves, and they would be totally at the mercy of their single client when it came to revenue and business decisions. On top of all that, the current CPA doesn't include money for making any substantial profit, because it would just be returned to the parent company anyway, so a new contract with higher rates would have to be negotiated if any new owners wanted to actually get anything out of it. That is to say, WestJet would end up spending more per year by selling Encore.
There are very few investors who would be willing to put money into such a venture, especially under the current CPA terms. Encore's greatest value is in helping to fill WestJet aircraft with connecting passengers, and that value doesn't mean much to anyone but WestJet's management and owners. Putting Encore out for an IPO would probably turn out a lot like Porter's did a few years ago, and they wouldn't get much, if anything, for it.
