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A pilot taxis a WestJet plane to a gate after arriving at Vancouver International Airport.DARRYL DYCK/The Canadian Press

Onex Corp., the private-equity company led by Gerry Schwartz, has struck a deal to buy WestJet Airlines Ltd. for $3.5-billion, seizing control of the country’s No. 2 carrier as it expands to capture more international and business-class travellers.

The cash transaction, which still requires the approval of regulators, would give one of Bay Street’s best-known companies a signature investment in an industry known for volatile profits and intense competition. With WestJet’s debt included, the deal is the biggest private-equity takeover of an airline in history, according to data provider Refinitiv.

It also marks a major shift in the direction of an airline that, after launching in 1996, built an image as a scrappy Western rival to Air Canada and has been a public company for most of its history. WestJet has struggled in recent years because of a confluence of issues, including a soft economy in Alberta and a successful movement by some groups of employees to unionize.

WestJet employs 14,000 people and has a fleet of about 180 planes that fly to more than 100 destinations. It is embarking on a period of expanding its fleet, adding new routes and focusing on higher-priced, business-class tickets. Last year it launched a discount subsidiary called Swoop in a bid to compete with no-frills airlines flying to the United States, Mexico and the Caribbean.

Related: What you need to know about Onex - and why investors are buying its stock today after the WestJet deal

ROB Magazine: After a tough year, WestJet is looking for growth. Here’s the new CEO’s plan

But the expansion has come with growing pains – including the formation of a pilots’ union, which last year came close to going on strike, rising fuel costs and the end of a partnership with American Airlines. WestJet’s 2018 profit declined by two-thirds year over year, to $91.5-million.

WestJet’s 13 Boeing 737 Max planes have been grounded since March, along with the global fleet of the jet, in the wake of two fatal crashes at other airlines.

CEO Edward Sims said the new ownership will not mean a shift in business strategy or culture. He said taking the company out of public markets relieves the pressure to update shareholders every quarter. Its headquarters will remain in Calgary.

“The airline business is a game for long-term planners … [involving] highly complex, costly elements like aircraft, like engines. In the intense gaze of being public, we are asked to explain, justify [and] account for those 25-year assets once every three months,” Mr. Sims said in an interview.

Onex has long been an investor in and watcher of aerospace and aviation companies, and WestJet is a company for which it had “a lot of affection,” Onex managing director Tawfiq Popatia said in an interview. Most famously, in 1999, Onex offered $1.8-billion in an audacious bid to acquire and merge Canadian Airlines, which was failing, and Air Canada. The takeover saga went on for months, with Air Canada fighting it every step of the way. Mr. Schwartz eventually dropped it after the bid was ruled offside by a Quebec court.

This deal came together quickly. Mr. Popatia, who leads Onex’s aerospace investments, said he first contacted WestJet in March. That touched off a “pretty intensive period of dialogue” that culminated in the approval of WestJet’s board of directors Sunday night.

The $31-per-share bid, a 67-per-cent premium, quickly lifted WestJet’s share price Monday by almost 60 per cent to close at $29.61 on the Toronto Stock Exchange. The price of Onex shares rose 4 per cent to close at $78.52.

Air Canada’s stock price rose more than 5 per cent to close at $38.21 on a day in which U.S.-China trade tensions drove broader markets lower.

The Onex bid’s high premium and the limited number of possible domestic suitors – federal rules prohibit foreign bidders from buying majority control of a Canadian airline – make it likely the deal will go ahead, said Doug Taylor, an analyst at Canaccord Genuity Capital Markets. “We see no obvious reason why a sale to Onex would get struck down by regulators or shareholders,” Mr. Taylor said in a note to clients.

He said the takeover should not mean a dramatic reshaping of the competitive landscape. “WestJet was generally well funded and was already embarking on a large and highly competitive expansion plan,” he said. “In our view, a private equity owner of an airline is likely to remain rational with respect to its approach to yields and profitability versus market share.”

Mr. Popatia said: "WestJet is one of Canada’s strongest brands, and we have tremendous respect for the business that [founder] Clive Beddoe and all WestJetters have built over the years.”

Onex, as a private-equity company, raises money for a series of partnerships that make investments. At the end of 2018, it had $23.2-billion of capital invested, both its own and its investors'. Last year it finished fundraising for Onex Partners V, a US$7.15-billion fund that has made two investments so far.

At Onex’s annual meeting last week, Mr. Schwartz lamented its 2018 performance, as the value of its private-equity investments dropped by 6 per cent. Its long-term goal is to grow capital per share by an average of 15 per cent a year, but instead it fell 5 per cent last year.

“Last year was not an easy year,” he said. “Our private-equity platform had several operating businesses underperform relative to our expectations. While this is not the first time we’ve been disappointed in our performance, thankfully it’s been many years since we’ve had a year like that.”

Onex has a long track record in aerospace, Canaccord Genuity analyst Scott Chan noted Monday. Its most profitable aerospace investment came from Spirit Aerospace Systems, which Onex brought to market as an initial public offering in June, 2014, at a price that returned 8½ times its investment. Onex portfolio company Hawker Beechcraft, on the other hand, went bankrupt in 2012, six years after its purchase.

Before the deal was announced Monday, WestJet’s stock price had fallen by just less than 5 per cent in the past 12 months, a better performance than that of some North American airlines but far behind that of Air Canada, whose shares rose more than 50 per cent in the same period.

Mr. Sims said the 2018 “headwinds” were “one-offs” that have become manageable. “Onex saw a lot of the progress we were making … and they liked what they saw.”

Related: Onex’s art of the deal: For Gerry Schwartz, bland is good for business. But is it enough in the face of new challenges?

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