Toronto-based asset manager Onex will sell a 15-per-cent stake in WestJet to Delta Air Lines and a 10-per-cent holding to Korean Air Lines.Jeff McIntosh/The Canadian Press
Onex Corp. ONEX-T is selling a 25-per-cent stake in WestJet Airlines to two of the world’s largest carriers for US$550-million, cashing in on an investment made just before the COVID-19 pandemic wrought havoc in the aviation industry.
In a deal that positions WestJet for further international expansion, Toronto-based asset manager Onex will sell a 15-per-cent stake in WestJet to Delta Air Lines Inc. DAL-N for US$330-million and a 10-per-cent holding to Korean Air Lines Co. for US$220-million.
Delta then plans to sell 2.3 per cent of the Calgary-based carrier to Air France-KLM S.A. for US$50-million. Federal regulations put a 25-per-cent cap on a foreign airline’s ownership of a domestic carrier.
Delta, Korean Air and Air France-KLM are part of the 18-member global SkyTeam airline alliance, a group that has no Canadian content. WestJet’s domestic rival, Air Canada, is a member of the 26-member Star Alliance airline network.
All three foreign airlines have WestJet partnerships on flights, airport operations and code sharing that date back more than a decade. WestJet chief executive officer Alexis von Hoensbroech said the decision to sell stakes in the airline opens the door to increased co-operation in every aspect of the airlines’ operations.
“This investment will help take our passenger experience to a new level,” said Mr. von Hoensbroech in an interview. “It’s an endorsement of WestJet’s strategy and unique culture.”
WestJet is expanding and upgrading its fleet and has an existing order book for 79 Boeing Co. aircraft worth US$10-billion.
While domestic traffic to U.S. destinations has dropped, because of U.S. President Donald Trump’s trade war, Mr. von Hoensbroech said there is strong demand for flights to vacation destinations, Asia and Europe. He said closer ties to the three international airlines will help WestJet “better align our capacity with demand.”
Delta is the largest U.S. airline, by market share, flying roughly 18 per cent of passengers. In a press release, Delta CEO Ed Bastian said: “Investing in a world-class partner like WestJet aligns our interests and ensures that we remain focused on providing a world-class global network.”
Atlanta-based Delta has taken equity stakes in a number of carriers, including Virgin Atlantic, based in London, and LATAM Airlines, which is headquartered in Santiago.
“Delta, and now Korean Air, see partial ownership as a structure that’s far stronger than a strategic alliance,” said John Gradek, an aviation specialist at McGill University. “Delta has shown it can build value for its own shareholders by taking these stakes in other airlines.”
Korean Air CEO Walter Cho said in a press release: “We are pleased to invest in WestJet as part of our continued commitment to enhancing transpacific connectivity.”
Delta and Korean Air will have two seats on the 13-member WestJet board. The transaction requires U.S. regulatory approval.
In December, 2019, Onex acquired WestJet for $3.5-billion, a leveraged buyout financed with $1.2-billion of equity from the asset manager and its institutional investor clients.
Three months later, the COVID-19 pandemic shut down the airline industry and prompted a federal government bailout. Air Canada negotiated a package with $5.375-billion of loans from Ottawa, which it repaid, and a $500-million equity infusion.
WestJet was the only domestic carrier to turn down government support. In 2022, the company acquired Sunwing Vacations, increasing its share of the holiday tour market. Over the past six years, Onex has received approximately $600-million in dividends from WestJet.
After the sale to Delta and Korean Air, which values WestJet’s equity at $3.1-billion, and the dividends, Onex and its clients will have made back their entire original investment. Onex will still own its 75-per-cent stake in WestJet and control the airline.
“Our investment in WestJet illustrates what we can achieve in our core sectors in difficult environments,” said Tawfiq Popatia, co-head of Onex Partners, the private-equity division of the company that owns WestJet.
Delta, Korean Air and Air France-KLM are among the world’s best-managed airlines, said Mr. Popatia. He said their endorsement creates more opportunities for Onex to create value from its stake in WestJet, including an initial public offering. During a call with analysts, Mr. Popatia said: “Given its size, I think it’s natural to think about this as ultimately one day being reintroduced to the public markets.”
Investment bank Barclays advised WestJet and Onex on the transaction.
On Friday, Onex CEO Bobby Le Blanc pointed to the foreign airlines’ commitment to WestJet as a sign of the value private-equity investors can create.
“The transaction will help strengthen established industry partnerships, and is a strong positive statement on WestJet’s strategy, performance and ability to continue to grow,” Mr. Le Blanc said on a conference call.
He said selling the 25-per-cent stake during a challenging period for the industry “speaks to our team’s ability to deliver positive realizations for high-quality assets in all market conditions.”
Onex reported profit of US$168-million, or US$2.36 per share, in the quarter that ended March 31. That compared with US$10-million in earnings, or 13 US cents per share, in the same quarter last year.
The company’s private-equity portfolio reported a 2-per-cent return in the first quarter, while its credit arm returned 1 per cent.
Onex closed fundraising for its Onex Partners Opportunities Fund at US$1.2-billion – a bridge fund that the company launched after it paused efforts to raise money for its largest private-equity fund, Onex Partners VI, in 2023. Its fifth private-equity fund for investing in small and mid-sized companies, ONCAP V, closed with US$1.3-billion in commitments.