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Porter Air at the Toronto Island Airport. (Peter Power/Peter Power/THE GLOBE AND MAIL)
Porter Air at the Toronto Island Airport. (Peter Power/Peter Power/THE GLOBE AND MAIL)

Airlines

Porter IPO back on the radar Add to ...

The stars are starting to line up for Porter Aviation Holdings Inc. to take another run at an initial public offering.

When the regional airline's board meets in mid-March, directors will explore a possible IPO or seek financing from private equity and institutional investors, Porter chief executive officer Robert Deluce said in an interview.

Last April, Porter attempted to raise $120-million through an IPO, but postponed the offering after a tepid reception from institutional and retail investors, who balked at the Toronto-based carrier's rosy valuation.

This time around, the investment climate has improved for a Porter IPO because the rebounding economy has boosted travel demand, more than offsetting escalating jet fuel bills, said Mr. Deluce, one of nine company directors.

"We certainly like the healthier economy and the resurgence of business travellers. Definitely, we're seeing large growth in terms of the number of passengers," he said, adding that a fleet of energy-efficient Bombardier Q400 turboprops and the strong loonie help to keep fuel expenses under control.

Mr. Deluce said Porter still has plenty of room to grow beyond the 1.56 million passengers that it flew last year, noting the addition this spring of two new destinations in Ontario - Windsor and Sault Ste. Marie - as well as expansion plans for the United States. The airline's fleet will grow to 24 planes this spring, after the delivery of four new Q400s.

From its launch in October, 2006, until the first quarter of 2010, Porter's losses totalled $44.5-million. Since Porter is privately owned, Mr. Deluce declined to release updated financial statements, but said investor demand for Porter shares should be brisk "if the picture is positive, which it has been."

Besides the airline, Porter also owns City Centre Terminal Corp., the landlord of recently expanded terminal space at Billy Bishop Toronto City Airport. Porter would have been valued at nearly $340-million in total, if the IPO last year had gone ahead.

One lingering concern is Air Canada's plan to return to Billy Bishop, a move that would break Porter's monopoly on commercial flights at the airport. Air Canada has chosen Sky Regional Airlines Inc. to operate non-stop flights between Montreal and the airport, located on an island off Toronto's downtown core.

But first, Air Canada must sign a leasing contract with City Centre Terminal, which is headed by Mr. Deluce. Negotiations with the airline are being handled by other executives, including Mr. Deluce's son, Michael, who is Porter's chief commercial officer.

To avoid any potential conflict between his roles at Porter and as the terminal's landlord, Robert Deluce said he is staying at arm's-length from those leasing talks, which have dragged on longer than expected. "We have a great terminal, but we also have a great airline. It's a good combination," he said.

A wild card for the long term is labour costs. Last week, Porter ground staff in Ottawa voted to join the Canadian Union of Public Employees. The fledgling 50-member bargaining unit marks the first union incursion at the 1,200-employee carrier.

Investors got their last good look at Porter's finances in its prospectus from May, 2010, and it will be difficult to assess its prospects until new financial statements are disclosed, PI Financial Corp. analyst Chris Murray said.

If Porter keeps its turboprops busy on new routes, then that bodes well for traffic, Mr. Murray said.

Two of the airline's shareholders, EdgeStone Capital Partners and GE Asset Management Inc., are said to be interested in exiting Porter by finding buyers for most or all of their respective stakes, or selling shares several months after an IPO.

Last year, Porter's traffic surged 87.7 per cent to 589.9 million revenue passenger miles. Its load factor, or the proportion of seats filled by paying customers, rose 6.3 percentage points to 54.2 per cent in 2010 - still low by industry standards, but good enough to be comfortably in Porter's break-even range.

"More of our seats are being filled, and that's a healthy proposition, especially when we already have a low break-even load factor to start with," Mr. Deluce said. "We're generating good cash."

While Porter's directors will discuss options this month, they could decide to defer any final decision until a meeting scheduled for June. "We're not in a hurry, and so far - touch wood - things are going quite well," Mr. Deluce said. "We have not decided in what form to proceed."

Anatomy of an airline

Porter shareholders

42.6 per cent: Regco Capital Corp., a group of investors led by Porter CEO Robert Deluce, veteran Bay Street money manager Ira Gluskin and Donald Carty, Porter's chairman.

21.4 per cent: OMERS Administration Corp.'s OSI Transportation Corp.

18.3 per cent: EdgeStone Capital Partners

14.6 per cent: GE Asset Management Inc.

3.1 per cent: Dancap Private Equity Inc.

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No. of employees

1,200, mostly non-union. Last week, 23 ground staff in Ottawa voted to join CUPE, 19 voted against and eight abstained. The new bargaining unit will have 50 members.

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Load factor

(proportion of seats filled by paying customers)

2010: 54.2 per cent

2009: 47.9 per cent

Brent Jang



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