Potential Porter sale a good deal with few buyers

[CBC News]

Toronto-based carrier Porter Airlines is reportedly seeking a buyer, but aviation expert Karl Moore says Canada’s foreign ownership rules for carriers mean selling won’t be easy.

Porter Aviation Holdings Inc., which owns the 10-year-old regional airline, is searching for a way to cash out, the Globe and Mail reports.

Moore said Porter, which flies out of Toronto’s downtown Billy Bishop island airport, is an attractive asset because of its strong reputation, its convenient location and its business model.

The challenge, he said, is finding a company willing to buy the airline outright that also fulfills the government mandate that domestic carriers must be 75 per cent Canadian-owned.

He said it’s unlikely that Air Canada, which already flies out of Billy Bishop, or WestJet, facing its own troubles as its Alberta base struggles through an economic downturn, would look to snap up the smaller rival.

“I don’t think there would be a lot of interest from within Canada, then you have foreign ownership rules—it gets quite complex,” he said.

“There are hurdles in the way of doing this — it’s not an easy thing to do.”

Founded in 2006, Porter has grown from a handful of planes flying a small number of routes to an airline that serves 24 destinations, including New York and Washington, D.C., as well as vacation spots such as Orlando, Fla., and Mont-Tremblant, Que.

The company is privately held and doesn’t disclose its revenue or passenger data.

Still, Moore said, Porter is clearly thriving as an alternative to its larger rivals including Air Canada and WestJet, especially for business travellers looking to avoid the trek from downtown Toronto to Pearson International Airport.

Requests for comment from WestJet and Air Canada were not returned.

The reason for the sale, he said, is that Porter’s financial backers are looking to cash out after building a successful business.

And while Porter could be sold to a new group of backers other than an airline, Moore said, it would face the same problems as the current ownership when it comes to finding another buyer.

The company’s investors include Regco Capital Corp., the Ontario pension fund and GE Asset Management Inc., among others.

“The kind of backers they have are those who are going to be looking for an exit strategy,” Moore said.

Porter was moving towards taking itself public, but in 2010 put plans for that IPO on hold because of what it called unfavourable market conditions.

‘Not for sale’

Porter spokesman Brad Cicero said in an emailed statement that there was no truth to the rumour.

“We have heard this many times over the past several years,” he said. “Porter is not for sale and there have been no discussions with any parties.”

Cicero said the company has “the strongest balance sheet of any airline in North America” thanks to its sale of the passenger terminal at Billy Bishop airport last year, noting that it has “substantial” cash on hand and no debt.

“We are positioning ourselves very well to complete a future IPO, as has previously been reported,” he said.

The price of oil, which is tied to the cost of jet fuel, has slid from above US$105 in June 2014 to trade below $30 in recent weeks.

Moore said that has cut Porter’s costs, as fuel is often the largest outlay for an airline, and the backers may want to get out while the company’s balance sheet is at its best.

The problem, he said, is that the stock market is again in turmoil. The Toronto stock market has lost more than 20 per cent from its most recent high in April 2015, and U.S. indexes, including the S&P 500 and the Nasdaq, have shown similar downturns since August.

“I don’t think it’s a brilliant time to do that now with what’s happening on the stock market,” he said. “If it didn’t make sense in 2010, it wouldn’t make sense now.”

Porter, which flies Bombardier Q400 turboprops, said in 2013 that it was looking to expand its fleet with Bombardier CS-100 jets, pending the approval of an expansion to the island airport.

That plan was opposed by locals and some Toronto politicians, and in late 2015 the new Liberal government said it wouldn’t reconsider the existing agreement prohibiting the use of jets at Billy Bishop airport.

“Without the C-Series being approved it causes Porter to say, ‘Where do we go from here?’” Moore said.

“I don’t know how you go forward. There’s not an obvious strategy.”