Delta, Korean Air’s 25% stake in WestJet – what does it all mean?

Onex Corp. is soaring to a payday, offloading a 25 per cent stake in WestJet for US$550 million to two global airline giants—turning turbulence into triumph.

As previously reported, Delta Air Lines will acquire a 15 per cent stake in WestJet for US$330 million, while Korean Air will buy a 10 per cent stake for US$220 million.

For Onex, which purchased WestJet in 2019 when the airline was struggling with labour issues, high fuel costs and intense competition, the transaction means cashing in on an investment that was made just before the COVID-19 pandemic crippled the aviation industry.

“The transaction was completed at more than a 25 per cent premium to our current WestJet NAV (net asset value),” Onex chief executive Bobby Le Blanc said on a conference call Friday, as reported by the Financial Times. “This is a significant achievement that speaks to our team’s ability to deliver positive realizations for high quality assets in all market conditions.”

READ MORE: Onex selling minority stakes in WestJet to Delta & Korean Air

Upon closing, Delta has the right and intent to sell and transfer a 2.3 per cent stake in WestJet to its Joint Venture partner Air France-KLM, also an existing WestJet partner, in exchange for US$50 million. This separate transaction would remain subject to certain Air France-KLM approvals.

Onex, meanwhile, will continue to own and control WestJet with a 75-per-cent stake.

On Friday, Le Blanc highlighted the foreign carriers’ investment as proof that private equity can unlock real value in the companies it backs.

“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,” Le Blanc said on the conference call.

He said selling the 25-per-cent stake during a challenging period for the industry – one defined by U.S. tariffs and a rocky economic and political climate – “speaks to our team’s ability to deliver positive realizations for high-quality assets in all market conditions.”

The next step could involve public markets, particularly given Canada’s foreign ownership restrictions.

“We are at the cap for strategic foreign investors,” Tawfiq Popatia, co-head of Onex Partners, said on the call. “Given its size, I think it’s natural to think about this as ultimately, one day, being reintroduced to the public markets.”

Popatia noted that selling the minority stake was a natural step in WestJet’s trajectory.

“We think this is a pretty good endorsement of the strategy (and) the performance through COVID,” he said.

Deepening the grip 

Since the pandemic, airlines have been consolidating by acquiring smaller competitors and investing in each other.

The trend has raised concerns that a handful of major carriers are gaining too much control, which could suppress competition, drive up ticket prices, reduce service variety, and make it harder for smaller airlines to compete.

For Atlanta-based Delta, which already partners on routes across the Pacific with Korean Air, the deal deepens the carrier’s grip across the Americas.

Delta currently ranks as the top U.S. airline by market share, carrying about 18 per cent of all domestic air travellers.

“Investing in a world-class partner like WestJet aligns our interests and ensures that we remain focused on providing a world-class global network,” said Delta CEO Ed Bastian in a press release.

Delta has taken equity stakes in a number of carriers, including Virgin Atlantic, based in London, and Santiago-based LATAM Airlines.

Speaking to The Globe, John Gradek, an aviation specialist at McGill University, said Delta, and now Korean Air, “see partial ownership as a structure that’s far stronger than a strategic alliance.”

“Delta has shown it can build value for its own shareholders by taking these stakes in other airlines,” Gradek told the outlet .

Delta, Korean Air and Air France-KLM have WestJet partnerships on flights, airport operations and code sharing that date back more than a decade.

WestJet’s CEO Alexis von Hoensbroech said selling stakes in the airline paves the way for deeper collaboration across all areas of operations.

“This investment will help take our passenger experience to a new level,” Mr. von Hoensbroech told The Globe. “It’s an endorsement of WestJet’s strategy and unique culture.”

Investing beyond the U.S.

The deal is also part of a wider strategy to tap into growing demand for international destinations beyond the United States.

President Donald Trump’s trade war and annexation threats have contributed to a drop in U.S. air travel demand, but a strong desire for travel to sun destinations, Asia and Europe remains, said von Hoensbroech.

The CEO said closer ties to three international airlines will help WestJet “better align our capacity with demand.”

Air Canada’s take

The CEO of rival Air Canada, Michael Rousseau, commented on the deal last week on the heels of the company releasing its Q1 results.

Speaking with analysts, he said WestJet’s announced agreement “shouldn’t be surprising to anybody.”

“We all know Delta has a strategy of putting minority interest in airlines around the world,” Rousseau said, as reported by the Calgary Herald. “So it doesn’t really surprise us, and we’ll monitor it and we’ll see what, if anything, changes over the next little while, but we don’t expect anything.”

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