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SUMMARY: Consolidation in the Canadian regional airline industry is slower than I expected, but recent acquisitions by West Wind Aviation of Osprey Wings and Harbour Air (aka “World’s Largest Seaplane Airline”) acquisition of Salt Spring Air on top of EIC acquiring Provincial Aerospace and Chorus Aviation acquiring Voyageur Airways earlier in 2015 gives me some hope for more mergers and acquisitions (M&A) activity in this sector over the next 1-3 years. In fact, Harbour Air itself has sold 49% of it’s equity to a Chinese investor in 2015, and is now planning to enter the highly questionable Chinese seaplane market , just as it solidifies it’s dominant market position in and around the Vancouver area having also acquired Whistler Air (in 2012) and West Coast Air (in 2010), and then divested itself off Prince Rupert based North Pacific Seaplanes (in 2013). There are 6 privately owned Canadian regional airlines that could be in play in the next 2-3 years, as several airlines are well into their 2nd generation of management by owners and most do not have a 3rd generation waiting to take control and few are actually growing and basically stuck in their traditional market. Publicly owned Exchange Income Corporation (EIC) with 5 airlines now has shown that you can make money with regional airlines as long as you have good management, a good market position/niche and financing behind you. The industry is changing, in the north, most airlines are now First Nation owned and the remaining privately owned airlines will find eager investors if they truly want to sell and are prepared for suitors before they need a buyer, as most small airlines are unprepared to generate interest with potential buyers, as they don’t even know how to value their business’s worth, what are its attributes and how to attract a broader pool of investors willing to pay more for the company. Last, I will discuss the growth of seaplane airlines around the world and the need for new aircraft beyond just old landplanes with bulky and heavy floats attached, for the industry to really grow.

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I have previously discussed the Canadian regional airline market, and that consolidation is coming as family run airlines are looking to sell their airlines, as witnessed by Exchange Income Corporation (EIC) of Winnipeg (TSX:EIF), which has bought 5 Canadian private family regional airlines in the past 12 years, and surely eyeing more: Perimeter Aviation in … Continue reading →

SUMMARY: Another Canadian airline has shut its doors again, as IMP Group’s CanJet Airlines has packed it in after 15 years of trying everything to be successful, from being sold to Canada 3000 and then revived, then went into scheduled services, then went into charter flying for tour operator Sunquest followed by ACMI flying for Air Transat and when that ended a failed quick and poorly planned attempt at becoming a tour operator as well, but CanJet Vacations lasted 2 months at best, again poor execution of a business plan and now it has run out of ideas. The airline has run the gauntlet of airline business models without any long term success or profit, the problem is more to do with execution than the business plans used, a common Canadian aviation problem. Now it will dry lease out its last 4 x B737-800’s and return them to their owners in May, 2016, but with no operations the AOC will be gone, and that is worth something for Canada’s aspiring ULCC start-ups like Canada Jetline or Maple Leaf Travel who have no AOC or money right now. Canada needs a ULCC, the business model is proven and LCC companies like Indigo Partners LCC and Irelandia Aviation surely would love to give it a try in Canada where 85% of domestic travel is in the hands of the duopoly of Westjet Airlines and Air Canada. Why are airlines like Air Transat allowed to lease in 10+ foreign B737-800’s on ACMI leases when Canadian aircraft and crews are available ? foreign ACMI leases should be allowed only when there is no Canadian lift available, time for the government to investigate this matter.

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As expected (my Blog May 19, 2015), Canada has lost another airline last week, when CanJet Airlines, shut down the operation of its last operational Boeing B737-800 which was operating on an ACMI lease for Air Transat out of Toronto, and was downgraded to just a dry lease, forcing the company to furlough its last … Continue reading →

SUMMARY: Canada’s charter airlines struggle, CanJet Airlines (owned by IMP) future in serious doubt while Air Transat limps along in its recovery, but Air Canada’s Rouge is growing and on its heels. Meanwhile the 3 ultra low cost airline candidates struggle to raise money, with Jet Naked (Enerjet) lost its 3 star ULCC (ultra low cost carrier) executives and now Enerjet is being sued by them for breach of contract. Meanwhile, NewLeaf Travel Co. Inc. ties up with Flair airlines to operate 2 x B737-400’s for it, IF and WHEN it raises sufficient start-up capital. Over in Vancouver, Canada Jetlines orders 5 and options another 16 Boeing B737Max7’s before it even has start-up financing in place ?? Interesting developments in this segment, and worth watching, as Canada needs a ultra low cost airline (ULCC) to offer low cost air travel to Canadians. Canada is the ONLY large country left without a LCC, and is controlled by a duopoly. Troubled CanJet Airlines has the potential to be a ULCC and save itself from doom, but right now it looks like no ULCC will start-up in Canada this year and CanJet will most likely be shut down, leaving NO low cost champion in Canada, and 34 million Canadians are prisoners to only 2 airlines domestically, a country that is only 2% smaller than all of Europe put together !

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The first 4 months of 2015, have brought mixed results for some of Canada’s airlines. In big trouble is one of Canada’s leisure and ad hoc charter airlines, Halifax based CanJet Airlines, owned by IMP Group International, a diversified conglomerate owned by the Rowe family, that now employs 4,500 employees in 6 Divisions in Aerospace … Continue reading →

ABSTRACT: Bombardier may have its CSeries launch customer in newly re-branded Lufthansa Group owned Swiss Global Air Lines which ‘should’ get the aircraft by 1Q/2016 ? at the earliest, while Bombardier desperately tries to ‘re-position’ the Q400 as a viable ATR-72-600 competitor with a “secret new technique” of slowing it down for better fuel economy and trip costs ?? the Q400 is $10 million more expensive, it uses 104% more power (shp), therefore it burns 40% more block fuel, engine maintenance is more expensive on PW150 than PW127 so how can it be economically close to the ATR which out sells the Q400 by a wide margin even with deep discounting on the Q400, meanwhile experts say the CSeries needs to be discounted by 50% to get the needed BIG airline orders as that is what BIG airlines expect, welcome to the BIG league Bombardier where huge discounts (30% to 50%) by Airbus and Boeing are the norm rather than the exception which can be up to 65%, and you can’t win a price war against Boeing or Airbus, can Bombardier even afford to heavily discount now that break-even has to be 580+ units as the CSeries program cost grows to $5.4 billion from an initial $3.4 billion and production is planned at only 10 per month ? break-even is now 6 years of production, can it afford NOT to discount with sales still stuck at a scant 243 “firm” orders (some highly questionable) after 6 years and NO major US airline order in sight ? meanwhile Lufthansa Group’s Austrian Airlines takes 17 x E195’s over CS100’s just like Air Canada kept its 25 x E190’s instead of buying the CSeries last summer, both after a thorough cost evaluation, so what gives with the economics of the CSeries ? Learjet without the Learjet 85 has little to offer, a sale of that company should be considered, the ‘good’ news is that Bombardier successfully raised $C 868 million in new equity and $C 2.25 billion in high yield debt to bolster its liquidity problem.

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The news at Bombardier Inc. keeps getting worst, as this past week China’s locomotive manufacturers China CNR Corp. was acquired by China CSR Corp. in a $US 26 billion merger, creating a large state owned enterprise (SOE) that will surely give the 3 other large train manufacturers Siemens (Germany), Bombardier (Canada) and Alstom (France) lots … Continue reading →

ABSTRACT: Chorus Aviation, the biggest Air Canada Express partner with 122 aircraft, is buying DHC-8 / CRJ-200 ACMI operations specialist Voyageur Airways for $C 80 million on the heels of an amended CPA (capacity purchase agreement) with Air Canada (AC) that now extends into 2025, and one that requires Chorus to lower its costs, one way to do that is to set up a separate low cost unit (Voyageur Airways) to operate the older DHC-8-100/300’s at a lower cost base , and another unit will continue to operate the newer and bigger Q400’s, CRJ-705’s and the CRJ-200’s, it is a strategic move to lower labor costs (at $95,442 per employee, 9% higher than at AC) and to stop other regional airlines like Sky Regional and Air Georgian from winning new AC CPA business in the future, Chorus Aviation is paying a rather high 4.7 times EBITDA to have its ‘low cost subsidiary’, the old and out of production DHC-8’s (average 26 years old) have become a burden on Chorus which generates 99.2% of its business from AC, its previous attempts to diversity have all failed, a regional LCC is a fantasy, too little room for extra seats or extra utilization to drive CASM’s down, Chorus Aviation’s 2014 Net Income margin of 3.9% is very low and cash flow was negative $C 45 million, AC needs low cost regional partners more than ever now and it just gave Chorus a 10 year life line to shape up.

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Canada’s Chorus Aviation Inc.  (TSX: CHR.B, CHR.A) is to buy all of the issued shares of 519222 Ontario Ltd. A holding company that owns North Bay, Ontario based Voyageur Airways and its affiliated companies for around $C 80.0 million to be its ‘low cost’ DHC-8-100/300 operator, a mini version of Rouge, which is Air Canada’s … Continue reading →

ABSTRACT: UPDATE – Bombardier plans first flight of the $72 million, 135 seat CS300 any day now, the future of Commercial Aircraft Division rides on this model, which today has 74% of the CSeries 243 meager orders, the company has just sold 424.4 million newly issued shares (TSX:BBD.B) at $C 2.21 per share (10% discount) and raised $C 938 million in equity with another $C 1.2+ billion in debt financing needed in 1H/2015 to raise liquidity, as cost of the CSeries program is now $5.4 billion (up by $2.0 billion), the Government of Quebec is prepared to “bail out” Bombardier Inc. if it needs it, for now it does not need it, the company is “too big to fail” ? 2015 is a BIG year for the company, get CS100 certification, and new orders will come, which will drive confidence and stock price upwards, miss the planned 2015 certification and the stock will plummet, already confidence among investors, customers, prospects and employees is very low, new President/CEO Alain Bellemare has the potential to turn it all around, but cannot due it alone, needs good people to implement the changes needed, any good executives left ? the problem is not the products but the poor leadership and bad corporate culture that has been allowed to permeate throughout the company under the previous CEO.

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As it looks now, the Bombardier CS300 is set for its 1st flight tomorrow, Thursday, February 26th, as it now has the approval from Transport Canada to test fly the aircraft. The Bombardier CS300 is in the 135 to 160 market, so it will compete with the Airbus A319neo and Boeing B737-Max7, a tough duo … Continue reading →

ABSTRACT: Canada Jetline and Jet Naked are racing to be Canada’s first ULCC (ultra low cost carrier), both looking to start this summer but funding the initial $50 million start up costs is dragging on, yet Canada Jetline orders 5 x B737-Max7’s and purchase rights on 16 more but delivery is not till 2021 and start up will be with old B737-300’s, can one of them do the same that Westjet Airlines did 19 years ago when it WAS a low fare airline with 3 x B737-200’s ? and when Air Canada failed to crush it early on with its failed LCC ZIP, presently Air Canada is busy with its low cost but not low fare subsidiary Rouge, while Westjet is building up its regional network with Encore and its wide-body fleet with B767-300’s (???) for flights to Europe and Hawaii, current distractions at AC and WJ are good for the ULCC hopefuls, Canada needs a LCC as we live in the ONLY major country in the world without a locally based LCC we can turn to for low fares as the duopoly here (AC and WJ have yields of +/- 19 cents/RPM) and have NO incentive to lower theirs, it is why +4.9 million Canadians drive to US border airports to fly on US carriers every year !

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Canada’s new ULLC (ultra low cost carrier), I prefer to use the term low fare airline (LFA), but anyway Canada Jetlines Ltd has signed an agreement with Boeing for 5 new B737-Max7 airliners for delivery in 2021, and has purchase rights for 16 more, while it is in the midst of raising $ C 50 … Continue reading →

ABSTRACT: Porter Airlines, now 8 years in operation and Canada’s 3rd largest scheduled airline has been in a state of semi-oblivion since 2011 when it received the last of its current 26 Q400’s, but the latest sale of its Passenger Terminal at Billy Bishop Toronto City Center Airport (CYTZ) for a reported C$ 750 million now gives Porter the money to move forward with its purchase of 12 plus 18 options for the Bombardier CS100’s, just needs to ‘influence’ Toronto’s City Council to allow jets into the airport and lengthen the runway by 400 meters, Bombardier desperately needs this Canadian/North American order for its struggling program, the political obstacles will surely be taken care off, so it is now very likely that Toronto’s City Council will approve of the lifting of the jet ban, agree to the runway extension and the CSeries will be in Porter’s livery one day as money always talks in politics and business, though Toronto will have another major airport right in downtown Toronto that will have to handle +4.5 million passengers ! but is the CS100 strategy the right one for Porter Airlines ? get the strategy wrong and it will bankrupt the airline in no time and can anyone ever change the airline duopoly in Canada ?

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Porter Airlines, Canada’s 3rd largest scheduled airline (though it has less than 2.5% of the C$ 13 billion a year Canadian domestic and trans-border market) was heading into its 9th year of operation in a state of oblivion, as its fleet of 26 Bombardier Q400’s (74 passenger seats) and 1,400 employees has remained constant since … Continue reading →

ABSTRACT: Bombardier takes another credibility hit, stock drops 25% in one day as investor confidence is shaken and they are selling, another senior executive departs, the Learjet 85 is “paused” with a $US 1.4 billion write down, certifying 4 new jets at once costing $US 6.9 billion was “nuts”, the Q400 and CRJ’s programs are near their end, another 1,000 employees are to be laid off on top of 2,000 last year, corporate credit rating cut, talk of a Q400 and CRJ assembly line in China, only 243 firm orders for the CSeries after 78 months of effort, and probably 100+ will NOT take delivery, Alenia a major CSeries subcontractor sues for $US 121 million, CSeries EIS not till 2016, low fuel prices diminish the fuel efficiency argument for CSeries, while it’s launch customer is a secret ? sell Commercial Aircraft Division to China’s COMAC and create Combardier ? capital markets worried about liquidity and management, Business Aircraft Division now discounting some aircraft, Learjet cannot survive on only 33 Learjet 70/75 sales (+/- $US 335 million) a year, is it doomed ? sell it off ? with a cashflow of only $US 800 million in 2014 will Aerospace have the cash to complete certification and produce the $US 1 billion Global 7000/8000 business jets and the $US 4.5 billion CSeries ? time for an outsider as CEO – again ?

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Bombardier, the world’s only plane and train manufacturer continues to disappoint shareholders, employees and customers, and on Wednesday, January 15th, we saw the wall crash down, when Bombardier stock (TSX:BBD.B) crashed downwards by 25.85% in one day ($US 1.8 billion in market capitalization) on volume of 57 million shares, to $CAD 3.07 from $CAD 4.14, ouch … Continue reading →

ABSTRACT: Fast growing Exchange Income Corporation (EIC) of Winnipeg buys its 7th aviation company for $246 million, Provincial Aerospace Ltd. (PAL) and is now the 3rd largest fixed wing commercial aircraft operator in Canada with around 117 aircraft and few have heard of the company, yet it has what we need in Canadian aviation, vision, desire to grow, good leadership and ability to source financing, who said you can’t make money in this industry ? it takes financial experts working closely with experienced aviation executives and letting them do their jobs ! finally a quick look at the Maritime Patrol Market that PAL is in.

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Back on January 31, 2013, I wrote a blog entitled “Consolidation through mergers and acquisitions in the Canadian regional airline industry and how to Value them ?”. I introduced the Exchange Income Corporation (EIC) (TSX: EIF) run by Mr. Mike Pyle out of Winnipeg, which today owns 6 aviation companies, 4 are regional airlines in … Continue reading →

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