UPDATE: Canadian regional airline consolidation continues as the once fragmented industry starts to consolidate around a single provincial operator. After 11 months under Canada’s CCAA (+/- Chapter 11 bankruptcy/reorganization), Quebec based regional airline, Pascan Aviation is acquired by 2 senior executives in a management buyout (MBO). Meanwhile Saskatchewan based WestWind Aviation, fresh from its acquisition of Osprey Wings last November, looks to takeover its main local competitor, Saab 340 operator Transwest Air, itself the product of two old local airlines and their pioneers (Athabasca Airways of Floyd Glass and La Ronge Aviation of Pat Campling) coming together in 2000, leaving WestWind Aviation a monopoly in Saskatchewan, much like Manitoba with Perimeter Airlines, Calm Air, Keewatin Air and Bearskin Airlines, all under one ownership. Times are changing for regional airlines in Canada, as the second generation of airline owners retire or sell of the businesses that their fathers and mothers built from scratch, usually with nothing more than a single Cessna 180 aircraft. Sad to see the old names disappear, it is the “circle of life”, but the legacies of our Canadian aviation pioneers will always remain with us.

UPDATE: As I wrote this, I found out that WestWind Aviation (80% First Nation owned) has bought Transwest Air for an undisclosed amount, now only 1 airline exists in Saskatchewan, like it or not.

This is my follow up to the January 5, 2016 article “Consolidation in the Canadian Regional Airline Industry”, as the once highly fragmented industry is seeing consolidation rapidly splitting the airlines by province.

The previous article mainly covered the Sakatoon based WestWind Aviation (Saskatechewan’s #1 regional airline) November, 2015 acquisition of La Ronge based Osprey Wings (Saskatchewan’s #3 regional airline, and Vancouver based Harbour Air (“World’s Largest Seaplane Airline” November, 2015 acquisition of local Salt Spring Air, and the acquisition of 49% of Harbour Air itself by Zongshen Industrial Group (China), for future seaplane operation in China itself.

For anyone asking themselves if Canadian regional airlines make money, one only has to look at the financial performance of Winnipeg, Manitoba based Exchange Income Corporation (TSX:EIC), which today owns 5 previously privately owned Canadian based regional airlines (Perimter, Calm Air, Bearskin, Keewatin and Provincial), an Aircraft Leasing and spares support company in the US (Air One) and a lone helicopter company (Custome Helicopters).

In 2015, the aviation holdings had a combined revenue of $C 614.7 million with EBITDA of $C 171.9 million, for a EBITDA margin of 28% ! yes, former family run regional airlines can be “cash cows” if professionally managed and financed, that is what EIC brings to the table. Stock price up 499% since May 6, 2004 and a simple acquisition strategy 1. must operate in niche market 2. strong management team 3. generate steady cashflow 4. be immediately accretive (An acquisition is considered accretive if it adds to the item’s value or corporation’s earnings per share).

Now back to Canada’s regional airlines, last week, one of Canada’s largest regional airlines, Pascan Aviation Inc. (based at St-Hubert Airport, Longueuil, Quebec) was acquired by 2 of its senior executives, CFO Yani Gagnon and COO Julian Roberts for an undisclosed amount following 11 months (as of September, 2015) under Canada’s Companies Creditors Arrangement Act (CCAA), a Canadian version of US Chapter 11 bankruptcy/reorganization.

This has allowed Pascan Aviation to continue to operate scheduled services for some time and gave it time to restructure the airline and negotiate a restructuring plan with all stakeholders and source new financing options. The airline did layoff 240 of the 340 employees and cut back on operations in Quebec where 10 of the 11 destinations are located).

Pascan Aviation Inc. was established in 1999 by Sege Charron as an independent regional airline serving up to 11 destinations in Quebec, Newfoundland and Labrador with a fleet that once totaled 22 aircraft (including 3 x ATR-42-300’s, 12 x Bae J31/32 and 4 x PC-12’s),of which 14 were up for sale of May, 2015, with one ATR-42-300QC (MSN 112) having been sold to Danish Air Transport (DAT), and now operating for Sunrise Airways (Haiti) under a operating lease from DAT.

The downfall comes on the weakening minerals and mining sector, which was the driver of future expansion under the Quebec Plan Nord, which was launched in May 2011 to drive mineral extraction activity in Quebec but was dropped 2013 after Pascan Aviation invested millions and took on a great deal of debt.

A management buyout (MBO) is a common exit strategy when companies are sold and simply involves an existing management team pooling its resources to acquire the business by using using their own money, debt from banks, subordinated debt for lending institutions private equity and leveraging existing company assets as collateral for more debt.

The method is welcomed by financiers, and business owners as it leaves the company in good knowledgeable hands with a future.

Though, the debt load can be crippling and as we recently saw with VLM Airlines (Belgium) filing for bankruptcy after it could not repay historical debts, the company was bought in a MBO in 2014 from Intro Aviation (Germany), but could not find a niche/market for its 11 x Fokker F50’s to be profitable.

I am sure we all wish the new owners much success at Pascan Aviation, and note there are several Bae J31/32 Jetstream aircraft available, though that aircraft is not in high demand, and already 3 of 8 at Fort Smith, Northwest Territories based Northwest Air Lease Ltd. are being cannibalized as that airline struggles to remain in business after 50 years, the sun is setting on many “old” regional airlines as we speak, the first sign of trouble is always the cannibalization of existing fleet for parts and engines, telling sign of financial troubles.

Now, back to Saskatchewan, where WestWind Aviation, after April, 2015 when the airline’s majority owner became Prince Albert based Athabaska Basin Development (ABD) after upping its stake from 29% to 54.85%, and the end of the airline’s founder Denis Goll, role in the airline, who started the company in 1983. Today, employees of WestWind Aviation own 20% of the airline, with 25% owned by Prince Albert Development and 55% by ABD. The company operates 2 seperate scheduled service brands, Expressair with BAe J31 Jetstreams between Saskatoon and Regina, and Pronto, which serves the northern communities of Saskatchewan with several Beech 1900C/D aircraft.

So in November WestWind Aviation bought Osprey Wings of La Ronge for what I estimate around $C 9.0 million based on the fleet then, and now in May of this year has made a Letter of Intent (LOI) for the acquisition of Prince Albert based Transwest Air, today owned by Patrick Campling Jr..

A little history here, Transwest Air is the product of two long time local rivals, Athabaska Airways founded by Floyd Glass in 1955 with a lone Cessna 180 and La Ronge Aviation founded by Patrick Campling in 1960 also with a lone Cessna 180, fast forward to August 2000 and the two pioneers had passed away, leaving the 2 airlines in the hands of their sons, Jim Glass and Patrick Campling Jr. and they came together and merged the two competing airlines into Transwest Air, a case where 1+1=3 and the airline has thrived ever since.

Sadly, Jim Glass died at the young age of 50 in June, 2012 leaving Patrick Campling Jr. as the sole owner of Transwest Air, which today, operates around 37 aircraft and helicopters throughout Saskatchewan, from 3 x Saab 340A/B’s, Beech 1900D, King Air 350/100/200/300, 4 x DHC-6 Twin Otters to 10 Bell 206/407/205 helicopters.

I had the great opportunity to meet Patrick Campling Jr. in 2014 and it was evident then that he was looking to exit at some point from the business, it will be sad to see another Canadian icon airline disappear, and another big aviation name fade into the history books, but always the names of Jim Glass and Pat Campling will be remembered in Saskatchewan.

The company I figure has revenues of around $C 40 million, and any deal should probably fetch Pat Campling Jr. around $C +/-28 million, that compares well to the $C 59 million the Morlberg family received for CALM Air International Ltd in 2009, or $C 32.5 million Harvey and Cliff Frisen received for Bearskin Airlines in 2011 or the $C 15 million Frank Robert May received for Keewatin Air in 2005, all well deserved rewards for a life time of work and pleasure in running and flying your own airline, hats off to them all.

Now there is a lot of synergies between WestWind Aviation and Transwest Air and competition as well, and such a merger would create a monopoly position for WestWind Aviation, which itself today under President/CEO Gord Gillespie operates 5 x ATR-42-300’s, 6 x King Air 200’s, 4 x DHC-6 Twin Otters (ex-Osprey), 10 x Beech 1900C/D’s, several Cessna 401/402’s and a Citation 560 Ultra.

The competition or lack of should be of concern to the Government of Saskatchewan, as the same today applies to Manitoba where Calm Air, Perimeter Aviation, Bearskin Airlines, Keewatin Air all belong under one ownership, that of Exchange Income Corporation (EIC) of Winnipeg, Manitoba, and real competition is non-existing in that Province and evident from the high yields or airline tickets in that Province.

I end this article with a deep worry that WestWind Aviation itself probably has many big problems these days, the 5 x ATR-42’s are busy flying to remote mining camps but given the slow down of mining around the world and especially the potash industry now facing stiff competition from China, prices are dropping for this once driver of Saskatchewan’s economy.

I will be sad to see Transwest Air go, but such are our times, and few “old” regional airlines are left now, Pacific Coastal Airlines under the Smith family, Northwestern Air Lease under the Harrold family are really the last of the “oldtimers” still in business, ah the circle of life !

Always thank full to those that take time to read my blog, I hope you always learn something from it, till next time, cheers.