How the Most Defensible Asset in Commercial Aviation Sits at Near-Zero on the Balance Sheet — While Lenders, Governments, and Sophisticated Acquirers Pay Billions for the Very Same Thing
While no one has written about it.... this is why there is a bidding war for easyjet. They have a very valuable SGR franchise at LGW. Unfortunately only an air carrier can own a SGR portfolio so in distress times, an SGR portfolio is only worth what another airline will pay for it. Yes, it can be collateral for a loan - but generally the SGR are already encumbered with first and second lien debt. Sure, it isnt on the balance sheet, but the debt is already there (RCF/Miles). I would argue that that the most important number is not the SGR portfolio but the credit car affinity program. Another reason the bidders are circling easyjet - they dont even have a loyalty program - easy money for PE to spin one up and then extract money from the various alliance partners - ahem Delta - who will want them to be part of SkyTeam. I can pretty much promise you that Delta and AF-KLM are part of the Castlelake consortium. Last thing is that not all slots are created equal and you need a slot pair - if you even wonder why the low cost carriers have flights that leave at like 2am this is why.
these are really good points that you have brought up. i do agree with what you’re saying. most of the time SGR portfolio are carried by the debts, but there are times where they net out positive? then again the problem lies in liquidity too right?
I’m also curious, how do you quantify the intrinsic value of the credit card program/ loyalty reward system? Is that only qualitative?
While no one has written about it.... this is why there is a bidding war for easyjet. They have a very valuable SGR franchise at LGW. Unfortunately only an air carrier can own a SGR portfolio so in distress times, an SGR portfolio is only worth what another airline will pay for it. Yes, it can be collateral for a loan - but generally the SGR are already encumbered with first and second lien debt. Sure, it isnt on the balance sheet, but the debt is already there (RCF/Miles). I would argue that that the most important number is not the SGR portfolio but the credit car affinity program. Another reason the bidders are circling easyjet - they dont even have a loyalty program - easy money for PE to spin one up and then extract money from the various alliance partners - ahem Delta - who will want them to be part of SkyTeam. I can pretty much promise you that Delta and AF-KLM are part of the Castlelake consortium. Last thing is that not all slots are created equal and you need a slot pair - if you even wonder why the low cost carriers have flights that leave at like 2am this is why.
these are really good points that you have brought up. i do agree with what you’re saying. most of the time SGR portfolio are carried by the debts, but there are times where they net out positive? then again the problem lies in liquidity too right?
I’m also curious, how do you quantify the intrinsic value of the credit card program/ loyalty reward system? Is that only qualitative?