Porter considers selling debt to buy CSeries planes

[midwingcrisis]

Porter considers selling debt to buy CSeries planes


By Frederic Tomesco, Bloomberg News May 1, 2013 12:06


Porter considers selling debt to buy CSeries planes



MONTREAL — Porter Airlines Inc. will consider selling aircraft-backed debt to pay for CSeries planes from Bombardier Inc., a purchase that marks the carrier’s first foray into jet travel, said Chief Executive Officer Robert Deluce.

The conditional deal to buy at least 12 Bombardier CS100 planes signals a break with Porter’s strategy of short-haul turboprop flights from Toronto’s Billy Bishop airport, on an island in Lake Ontario. The CSeries deal, with a catalogue value of about $870 million, would let Porter start long-haul service to cities such as Los Angeles and Nassau, Bahamas.

Issuing debt secured by the new planes “is one of the options for sure,” the 63-year-old Deluce said yesterday in an interview at Porter headquarters in Toronto. “Our finance guys are pretty sophisticated, and they will look at any and all means of financing the aircraft at the point in time where we’re faced with that.”

Those sales are common outside Canada, with carriers issuing at least $77 billion in the U.S. for jet purchases since 1987, according to a JPMorgan Chase & Co. report in April. Air Canada became the country’s first carrier to sell enhanced equipment trust certificates when it issued $714.5 million to pay for five Boeing 777-300ER aircraft last week.

Compounding the novelty is the fact that the CSeries jets haven’t even flown yet. Bombardier plans to conduct the plane’s first flight next month, a deadline it postponed by six months in November.

GEARED TURBOFAN

Additional financing options for the CSeries jets include loans from Export Development Canada, the country’s export- financing arm, Deluce said.

The CSeries will be Bombardier’s biggest-ever aircraft and cost about $3.4 billion to develop. The plane maker said the CSeries, which will feature the new geared turbofan engine from United Technologies Corp.’s Pratt & Whitney, will be about four times quieter than existing jets.

Porter, which is closely held, doesn’t disclose financial results, and Deluce would say only that the company is profitable. Porter has no immediate plans to revive an initial public offering that it scrapped in 2009, the CEO said.

Porter’s order with Bombardier also includes options for another 18 CS100s, as well as purchase rights on six Q400s. Should all purchase rights and options be exercised, the value of the deal would increase to about $2.3 billion at list prices, Bombardier said.

RUNWAY EXPANSION

For the deal to proceed, Deluce must persuade officials to end a ban on jets at Billy Bishop airport and stretch the runway by about 28 per cent. Deluce said yesterday he’s still confident of winning approval from the City of Toronto and two other parties to the agreement governing the airport — the federal government and the Toronto Port Authority — this year.

“Things are progressing, maybe even a little quicker than we had originally been anticipating,” Deluce said. “We always knew there would be a full conversation around the merits of Porter’s plans. We remain optimistic.”

Studies on how much the proposed extension would cost are underway and will be completed “in the not too distant future,” Deluce said without being more specific. Until they’re finished, it’s premature to speculate how large an investment would be required, he said.

Read more: http://www.montrealgazette.com/Porter+c ... z2S3hunyDS

[Obbie]

Looking forward to the day when reality catches up with this
PR stunt and the whole thing falls through. The C series
deserves a real customer, not a circus act.

[Cargo Fire]

Very True. My sentiments exactly. However; anyone that plays poker knows that this is just RD going "All In". He is trying to force WJ or AC to purchase Porter (which I believe was the plan since day one); and this is just a high stakes way of forcing their hand. I seriously doubt it is going to work. But Hey; him and Bombardier couldn't buy the advertising that this stunt has generated. All part of the master plan. (Employee retention is another added bonus)

[aileron]

And thank you to the Peanut Gallery...

Obie/Cargo Fire, thank you for your wonderful and insightful echoing of some so-called aviation experts out there - whom for the most part are un-marketable wannabes who pounce on an opportunity to be heard.

And now, enter stage left, drum roll please - Reality Chex Whom I believe is still from Missouri!

3...2...1...

Last I checked Porter has:

1 ) Real Airplanes
2 ) Real Employees
3 ) Real Airport Terminal
4 ) Real Destinations
5 ) Real Passengers
6 ) Real Investors
7 ) Real Board of Directors
8 ) Real Profit Share Cheques

Obie, over here in Canada we have been working Real Hard for a Real Airline to make a Real Difference. If Toronto City Council votes positively we will have Real C Series Orders. Meanwhile we continue to do Real Work and look forward to seeing Real Opportunity for Real Future Employees...

[Obbie]

Aileron you sound like several old Air Ontario employees I know,
just before they got sold up the river.

Your boss has a long and well established track record of how
he does things, but maybe you are far too young to know
anything about it.

The best predictor of someones future actions, is their past actions.

The big "D" family will make sure they get their money out of Porter,
and they know now is the time, whether you do or not.

[Cargo Fire]

Last I checked Porter has:

1 ) Real Airplanes
2 ) Real Employees
3 ) Real Airport Terminal
4 ) Real Destinations
5 ) Real Passengers
6 ) Real Investors
7 ) Real Board of Directors
8 ) Real Profit Share Cheques

Obie, over here in Canada we have been working Real Hard for a Real Airline to make a Real Difference. If Toronto City Council votes positively we will have Real C Series Orders. Meanwhile we continue to do Real Work and look forward to seeing Real Opportunity for Real Future Employees...

My understanding is that all these "Real" items; currently apply to a Q400 operation; not a pipe dream C Series Operation, that has more hurdles to jump, than an Olympic Horse Jumping Competition, for even a slim chance of ever coming to fruition. And I stress the word slim.

As far as item number 8 "Real Profit Share Checks"; I understand that back in the early days of Porter (2007-2009); there were "Real" "profit sharing" checks issued to all the employees (I remember arguing with POE friends back in those days, that there was no way a start up with the loads they were carrying back then could turn a profit) Turns out that that was all for word of mouth advertising, and to pump up interest in Porter as a miracle instant success story. I assume it was to hopefully generate interest in a potential purchase by WJ or AC; and to generate interest in the Street....eg. Bay Street. When the IPO failed, it was due to Porter having to cough up audited financial statements, and finally disclose that in fact they had never been profitable, and were in fact $44 Million in the hole. So much for the "profit" sharing checks. Those funds had just come out of Porters initial Capitalization.

I bring this point up; as I believe this C Series Order, is about as real as the "profit sharing" was back in those days. I honestly believe this is nothing more than high stakes poker, and another smoke and mirrors trick to force a purchase of the airline. Remember; this "C Series purchase" has more escapes built into it than I think Houdini could be credited with. The "profit sharing" back in those days served a purpose; and so does the announcement of this "order".

If I'm wrong; I'll gladly buy the beer (not Steam Whistle), and you can tell me all about the C Series. Because it does look like it is going to be a great airplane, and I wish Bombardier all the success in the world with it. And if Porter does pull off this miracle; then I wish you and Porter the best of luck with it as well.

[Cargo Fire]

And before anyone accuses me of being against Porter or a Realitychex lover; I just want to clarify I'm not.

I have friends at Porter and wish them well; the more jobs available in this country, the better it is for all of us. I also support Rob Ford and the majority of his policies (he is a big Porter supporter). There is nothing I would like to see more than the tree huggers on the Island have to watch Jets stream past their front windows at 22:59 and 07:01 as I am a firm believer that the airport was there long before the Greenies called it home.

But I just don't personally believe this is going to happen for all the reasons I previously stated and several more.

As was stated earlier, if you are at all familiar with Air Ontario and Austin etc; this whole ploy makes a lot of sense, and the writing is on the wall in my opinion.

[crooked timber]

...
8 ) Real Profit Share Cheques

As far as item number 8 "Real Profit Share Checks"; I understand that back in the early days of Porter (2007-2009); there were "Real" "profit sharing" checks issued to all the employees (I remember arguing with POE friends back in those days, that there was no way a start up with the loads they were carrying back then could turn a profit) Turns out that that was all for word of mouth advertising, and to pump up interest in Porter as a miracle instant success story. I assume it was to hopefully generate interest in a potential purchase by WJ or AC; and to generate interest in the Street....eg. Bay Street. When the IPO failed, it was due to Porter having to cough up audited financial statements, and finally disclose that in fact they had never been profitable, and were in fact $44 Million in the hole. So much for the "profit" sharing checks. Those funds had just come out of Porters initial Capitalization.

I bring this point up; as I believe this C Series Order, is about as real as the "profit sharing" was back in those days. I honestly believe this is nothing more than high stakes poker, and another smoke and mirrors trick to force a purchase of the airline. Remember; this "C Series purchase" has more escapes built into it than I think Houdini could be credited with. The "profit sharing" back in those days served a purpose; and so does the announcement of this "order".

profit sharing cheques aren't exactly a good rubric for determination of whether or not a company is making money since the metric for profit share is commonly taken from the EBITDA(R) line (as opposed to the "bottom line" net income). a company can be highly leveraged with many obligations but still post a perfectly attractive EBITIDA

[Handski]

In the early days, profit sharing cheques at Porter were issues per quarter. So it is entirely possible that the employees would see a cheque (which they did, although it was peanuts), and the company would not turn a profit that year. That was clearly laid out in the IPO prospectus - Porter claimed they were not profitable all along.

Nowadays, profit share cheques have been adjusted to occur once per year. Based on the fiscal year, not quarter. That's why employees didn't see a cheque for a couple years, Porter was building an empire. Now it's profitable, and the past two years employees have been receiving increasingly lucrative cheques.

Also, the IPO was not pulled because of the prospectus. It was pulled because of market conditions, something that was an incredibly smart move. If you knew the first thing about the market at the time, you would know why.

Now.... who was offering to buy the beer if they were wrong?

[Valhalla]

In 2007, Porter gave me a retention BONUS cheque. They made it clear in internal communication that it was not profit sharing cheque. I thought it was a classy move for those of us taking a risk working at a startup, as none of us expected a profit from taking 10 people per flight on average to Ottawa and back. Back in the first few years, a lot of money was spent establishing the brand, changing people's travel habits away from Pearson, and protecting the slots. I give Mr. Deluce and his investors credit for with their long term vision. In 2006, 26,000 passengers flew through YTZ. In 2012, that number was above $2M and growing.

I'd like to also point out that the economic conditions surrounding the airport are different now versus 25 years ago in the days of City Express. Unlike the past when the airport operated at a consistent loss, The Port Authority, city of Toronto, and the Federal government all have made millions in profits these last 3 years from the massive growth in passenger movement at the island. Improving the runway and bringing in the bigger C series will translate into even more money for the city of Toronto and the feds. It's as simple as that.

As for the speculation, please keep it coming! It makes for interesting reading. We've heard all the negative predictions right from day 1, so why stop now? At the end of the day, Porter's success doesn't depend on speculation or predictions.

[Panama Jack]

Interesting thread. In particular, I thought crooked timber's observations to be very valid. A lot of companies boast about their EBITDA(R) but Warren Buffet would agree that to boast over this is a fool's gold of business metrics.

I have never met Robert Deluce nor worked for any of his many companies. My impression, though, is that he is overall a successful and savvy entrepreneur who has specialized in the aviation industry. Most entrepreneurs and investors look for an exit strategy; the big pay-off for their initial investment, risk, and sweat. IPO is a common avenue but if the markets are down, maybe trying to peddle the airline to a competitor is the next best thing? Deluce is in his 60's. Maybe he figures it is to hang up the hat?