EasyJet takeover

[alangla]

Looks like they’ve accepted an offer from Castlelake https://www.bbc.co.uk/news/articles/cgjxx7ngz51o

What’s the thoughts? Beginning of the end or a new opportunity? What percentage of the fleet is owned versus leased? Owned fleet sold & leased back?

[Bradgate]

Beginning of the end, sadly. I don’t see how it’s possible for an airline, of all businesses, to succeed under PE ownership. If they run retailers & supermarkets into the ground (eg Debenhams, Asda, Morrisons) I don’t see how they can allow the level of vastly expensive training, maintenance, fleet renewal, marketing, IT investment etc which airlines need to remain competitive in what is the most cut-throat of all industries. Particularly for low-cost carriers which don’t have fortress hubs & all-powerful loyalty programs for frequent flyers, premium & corporate passengers.

It’s inevitable that the new owners will asset-strip the business by selling & leasing back the fleet thereby permanently increasing the cost base & destroying competitiveness. Staff salaries & working conditions will be squeezed which inevitably means that pilots & engineers will leave & management will struggle to replace them.

[captain_cynic]

Bradgate said:

Beginning of the end, sadly. I don t see how it s possible for an airline, of all businesses, to succeed under PE ownership. If they run retailers & supermarkets into the ground (eg Debenhams, Asda, Morrisons) I don t see how they can allow the level of vastly expensive training, maintenance, fleet renewal, marketing, IT investment etc which airlines need to remain competitive in what is the most cut-throat of all industries. Particularly for low-cost carriers which don t have fortress hubs & all-powerful loyalty programs for frequent flyers, premium & corporate passengers.

It s inevitable that the new owners will asset-strip the business by selling & leasing back the fleet thereby permanently increasing the cost base & destroying competitiveness. Staff salaries & working conditions will be squeezed which inevitably means that pilots & engineers will leave & management will struggle to replace them.

Isn't that the whole point of PE? Run something into the ground, extract all the money you can and then sell the corpse (bit by bit if you have to).

[alangla]

I don’t know if running it into the ground is the point of PE as it tends to result in the value of the shareholding being wiped out, more the near-inevitable consequence of the business practices employed beforehand, ie liquidating almost every penny in assets possible, extracting the proceeds and saddling the organisation with the debt used to purchase it.
In the case of easyJet, from what I’ve seen, there’s apparently around 200 aircraft owned outright (IIRC they were forced into a sale & leaseback during the pandemic to survive, so less owned aircraft than might be expected), orders for hundreds of A320/321 Neos that are like gold dust and obviously slots at various large European airports including Gatwick, Amsterdam, Charles de Gaulle etc.

Probably plenty of value in the company that can be bled dry. In some ways it might have been better if Wizz had succeeded in their attempts a few years ago, much as I think they’ll eventually over-expand and go bust. I never thought I’d say this, but I’m glad now that I’ve got an ATOL for my October 27 holiday with easyJet, anyone know what happens if they decide to abandon the route you’re booked to travel on, but are still trading?

[Bradgate]

alangla said:

I never thought I d say this, but I m glad now that I ve got an ATOL for my October 27 holiday with easyJet, anyone know what happens if they decide to abandon the route you re booked to travel on, but are still trading?

Generally, when airlines drop a particular route they will offer passengers the choice of re-route, from a different airport or with another carrier if necessary, or a full refund.

[48k]

Bradgate said:

Beginning of the end, sadly. I don t see how it s possible for an airline, of all businesses, to succeed under PE ownership.

SAS are still going and Castlelake invested in them.

[-Cappo-]

captain_cynic said:

Bradgate said:

Beginning of the end, sadly. I don t see how it s possible for an airline, of all businesses, to succeed under PE ownership. If they run retailers & supermarkets into the ground (eg Debenhams, Asda, Morrisons) I don t see how they can allow the level of vastly expensive training, maintenance, fleet renewal, marketing, IT investment etc which airlines need to remain competitive in what is the most cut-throat of all industries. Particularly for low-cost carriers which don t have fortress hubs & all-powerful loyalty programs for frequent flyers, premium & corporate passengers.

It s inevitable that the new owners will asset-strip the business by selling & leasing back the fleet thereby permanently increasing the cost base & destroying competitiveness. Staff salaries & working conditions will be squeezed which inevitably means that pilots & engineers will leave & management will struggle to replace them.

Isn't that the whole point of PE? Run something into the ground, extract all the money you can and then sell the corpse (bit by bit if you have to).

Yes, but at zero benefit (and ultimate loss of a service) to the consumer. The PE model stinks where clients/consumers are involved; been there, seen that, more than once, in the MSP sector.

[alangla]

Seems there’s a rival bid now https://www.bbc.co.uk/news/articles/cgjxqq9jg8yo

[Simpo Two]

R4 news said a bid had been accepted and that started a bidding war.

How can a bidding war start after a bid has been accepted?

[DoubleSix]

The board can recommend acceptance to the shareholders but that doesn’t make it a done deal. Things change. Things did change.

[Simpo Two]

DoubleSix said:

The board can recommend acceptance to the shareholders but that doesn t make it a done deal. Things change. Things did change.

Ah I see. So the board provisionally accepted but the shareholders said no. Ta!

[DoubleSix]

It didn t get to a vote but the board signalled they were supportive of a deal that represented value for shareholders. Aside from the day to day running of the business securing value for shareholders is their job.

As a (reasonably well invested) shareholder myself i did not agree with the board on this point. They were giving in too “easy” at 690p…. Clearly others thought so too!

Edited by DoubleSix on Friday 10th July 21:46

[havoc]

-Cappo- said:

Yes, but at zero benefit (and ultimate loss of a service) to the consumer. The PE model stinks where clients/consumers are involved; been there, seen that, more than once, in the MSP sector.

It shouldn't be the case, but as someone else who's ended up working under PE owners for some years, it tends to be.

Too often a company is bought, the debt to buy the company is reversed into it (massive increase in interest costs / cashflow required by the acquired company to service the debt), and there is an assumption that costs can be cut / efficiencies made / opportunities grasped to grow the company and "create value" (sic)*.
- If they can, the company is sold on in 3-5 years, the PE investor makes a profit, happy days**.
- If they can't, the company enters a horrible spiral of cutting costs and service in an effort to maintain an increasingly unachievable cashflow/profit level.

In the old days of a decent economy and low interest rates, the above worked more often than not. But in the current economy of higher interest rates and a lot of uncertainty (as well as target companies that have already done a lot of cost-cutting), PE is increasingly looking like a potential death sentence for companies, or at least for their reputations and/or their culture/staff morale.



* PE firms WANT to grow companies as that's how they make their money, but by reversing the debt down they remove any downside risk if the company fails, which is the model that's driven them to take riskier investments and be more cavalier with "oh well, that company's failed, we've put 2,000 people out of work".

** Until the next PE buyer tries to do the same, or the one after that...diminishing returns and all that...

[48k]

At the risk of repeating myself.

48k said:

SAS are still going and Castlelake invested in them.

In 2023 SAS filed chapter 11 bankruptcy. Castlelake got involved in a restructure. Two weeks ago SAS placed a record 8bn order with airbus and are positively thriving to the point that Castlelake already exited.

[alangla]

48k said:

In 2023 SAS filed chapter 11 bankruptcy. Castlelake got involved in a restructure. Two weeks ago SAS placed a record 8bn order with airbus and are positively thriving to the point that Castlelake already exited.

Which is great and hopefully they would be able to dig themselves out of their current apparent doldrums. The takeover has moved on however and it’s now looking more like Apollo are the preferred suitor: what’s their track record like?

[captain_cynic]

alangla said:

48k said:

In 2023 SAS filed chapter 11 bankruptcy. Castlelake got involved in a restructure. Two weeks ago SAS placed a record 8bn order with airbus and are positively thriving to the point that Castlelake already exited.

Which is great and hopefully they would be able to dig themselves out of their current apparent doldrums. The takeover has moved on however and it s now looking more like Apollo are the preferred suitor: what s their track record like?

Apollo? Destroyer of companies.

Took Rackspace from the premier MSP to absolute garbage in about 4 years.

They're the epitome of why people hate PE.

[Sheepshanks]

captain_cynic said:

Apollo? Destroyer of companies.

Took Rackspace from the premier MSP to absolute garbage in about 4 years.

They're the epitome of why people hate PE.

Oh dear - we used to use Rackspace. Technically it was fine, billing became a nightmare.

We've got two easyJet holidays booked including one a year away which I wasn't mad about booking as I don't like arranging stuff so long in advance but my wife insisted it was a great price.

Let's hope the EU block it.

[alangla]

Sheepshanks said:

Oh dear - we used to use Rackspace. Technically it was fine, billing became a nightmare.

We've got two easyJet holidays booked including one a year away which I wasn't mad about booking as I don't like arranging stuff so long in advance but my wife insisted it was a great price.

Let's hope the EU block it.

At least with their current booking policies you can get everything back as cash if you decide to cancel apart from the deposit that they give you as a voucher.

[Sheepshanks]

alangla said:

At least with their current booking policies you can get everything back as cash if you decide to cancel apart from the deposit that they give you as a voucher.

Well, apart from the small deposit you don't pay until 30 days out. It's why we've preferred to book with them rather then Jet2 for the same holidays. Plus the seats on Jet2's new aircraft are unbearable - but they're supposed to be changing them.

[captain_cynic]

Sheepshanks said:

captain_cynic said:

Apollo? Destroyer of companies.

Took Rackspace from the premier MSP to absolute garbage in about 4 years.

They're the epitome of why people hate PE.

Oh dear - we used to use Rackspace. Technically it was fine, billing became a nightmare.

We've got two easyJet holidays booked including one a year away which I wasn't mad about booking as I don't like arranging stuff so long in advance but my wife insisted it was a great price.

Let's hope the EU block it.

I had an insiders view of the decline, billing was a mess but now it's the best part, they make sure you get your bill and that you're signed up for an enforceable 3 year contract, it's the service that's horrible, you're not likely to get anyone outside of India now and they didn't hire for skill in India... But I digress.

Hope your holidays pan out, it took Apollo years to reduce Rackspace to what it became.