Ryan air will be laughing at this shit show of an idea. EasyJet will be bust in a few years and someone else will pick it up for a song. These types of deals should be illegal.
But we know that PE, Hedge Funds and leveraged buy outs. Virtually always destroy the company. To the detriment of society as a whole. No major country operates a truly laissez-faire economy, with no regulation as it's been proven over and over again. That companies operate solely in their own best interests and often on a short term basis. With one of the most recent examples being Taylor Farms spending money to lobby the Trump administration to remove "unnecessary" red tape, in the field of food hygiene and now seemingly in a death spiral, due to their diarrhoea parasite outbreak. Where retailers can't give away Taylor Farm salads and that is unlikely to change. Perrier mineral water has never recovered from a benzene contamination issue back in the late '80s/early '90s.
What does this statement even mean? What happens in reality is that the EasyJet assets are the underlying collateral for the debt. It isn’t ’transferring’ anywhere?
Yes to the extent that the asset is operating as a collateral. No because the lenders do not usually have recourse to the sponsors and are restricted to the target group and the cash flow of the target group alone to service debt. With a mortgage, it's not the underlying asset that is expected to service debt, it's the owner of the asset. If they can monetise their assets to make money (through an Airbnb, for example), then that's usually fair game, but ultimately the lenders have recourse to you or your company as the owners as well, which isn't true for leveraged buyouts.
That said, the lenders do want their money back, and unlike what people believe, they will not allow the sponsor to strip the company away for parts, pay themselves the dividends, and let the company die and leave the lenders with scraps to sell off at liquidation, receiving a pittance in return. As you would imagine, banks are not stupid to just let their money go to waste, and the loan documents typically place restrictions on dividend payouts, asset disposals, and any money going out of the target group, to keep the sponsor incentivised to have the company make profits as a going concern.
No it is that easy. Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work.
EasyJet like most airlines has few assets. They borrow billions, buy the asset. Transfer the debt to it and pay out a fortune in dividends whilst selling off what assets to company has and lease them back. Until its debt is just junk. It’s a dumb way to do business and doesn’t work.
This dosent make sense. You seem to think they can borrow to buy an asset, sell the asset, and make easy money. It dosent work like that you will have to pay back the debtors first
No it is that easy. Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work.
"I’m amazed how little people on this sub understand how these transactions work" -> you dont understand it lol.
If its that easy then why does everyone not do it?
Like where do they get 3 billion profit from in this? Really you are so close. Suppose they buy it for 4 billion (3 billion via debt, 1 billion their own caprial). So day one the business is now worth 1 billion (as there is 3 billion more debt on a previous valuation of 4 billion).
Suppose they do nothing to grow the business or pay off the debt, so when they sell it its worth 1billion
So they put 1 billion in at the start and get 1 billion out at the end. They havent made the 3 billion.
I mean your assumption is that they would be able to sell for 4 billion even with the additional debt. Which is a nonsense unless they have increased the value of the business.
Also if its say a 4 billion pound company and you borrowed 3 billion to buy it, then you can't just borrow another 3billion to pay yourselves dividend (as no one is going to lend you 6 billion against a 4 billion company)
You did not read or even comprehend what I wrote did you. This is basic stuff. I never mention profit or paying off debt. That’s grade school thinking. I said fees. Dividends. Quite different.
No. You borrow money against an asset. You can’t strip the house and mortgages contain provisions that govern what you can do. You do know how they work right?
Not really, a mortgage is secured against the asset, the house. What it will stop it buying a house using borrowed money against another asset, which was likely also purchased against another asset under dept etc...
No. You borrow money against an asset. You can’t strip the house and mortgages contain provisions that govern what you can do. You do know how they work right?
Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work. You seem to think you buy a house in the same way 🙄
The average person has far less financial literacy now. Read a selection of comments in this 'economics' sub as an example, maybe half a dozen people show a basic understanding of PE.
"LBO’s often leave communities and the initial company much worse off way too much to call it a sensible way of operating."
Caesars
Toys r us
Envision
Any Clearlake deal lmao
Chrysler
I can go on and on with examples. If LBO’s have a 66% success rate then it’s a trade worth pursuing for PE firms however a 1/3 chance of people losing jobs and making the communities worse is objectively bad for the community not sure how you don’t understand this.
Oh no some unsuccessful deals, and I'm sure Clearlake with their $200b AUM really care what you think.
In reality the success rate for LBOs is over 99%, so a 99% chance of people gaining jobs and making the communities better is objectively good for the community not sure how you don’t understand this.
II did a study which found 20% of companies undergoing LBO go bankrupt within 10 years so no idea where you are pulling this 99% figure out of your ass from.
You clearly do not work in private credit or know people in private credit to know enough about deals that happen to say 99% are successful.
II did a study which found 99% of companies undergoing LBO are super successful within 10 years so no idea where you are pulling this 20% figure out of your ass from.
We are talking about PE and now you are bringing up PC? Did the little bot confuse themself?
EasyJet to collapse in 5 years. Especially if most of its debt is denominated in dollars. The Asda deal really went pear shaped when Liz Truss crashed the economy and the pound. Making it's dollar denominated debt even more expensive to service.
It's pretty rare for the UK government to bail out airlines. I don't think it's happened since the 1970s and Easyjet whilst big isn't too big to fail. BA on the other hand......
There is an entire insane mythology repeated by an echo chamber as to what Liz Truss did, and they don't care about the facts. They just repeat what the echo chamber repeats.
I don't like her but the absolute NONSENSE that is said about what was after all recent history .. wow.
So you think that it's reasonable for people to say things that are just untrue, because they don't like the target of their derision, and the person who is trying to bring the discussion back to the facts and the truth is the problem. That everyone else should stay quiet and look at the floor or join in with the untruth to not be .. "unpopular" or something?
That's how playground bullying works, it shouldn't be how adults work.
If people stuck to facts and the truth, this world would be a damned sight less of a mess, instead it's going the opposite way .. :(
It was a bad deal to start with. Two brothers with extensive knowledge of the petrol station business, along with an American hedge fund. Taking over a major food retailer that had a few petrol stations. With Walmart retaining a 10% share.
Shortly afterwards the brothers had a major falling out when one of them had an affair, with an employee of their auditing firm. As they both lived in the same house with their extended family. With the other brother and their parents siding with the wife and her children.
The deal was financed by the American hedge fund/PE company in dollars. Within a few months the pound went from $1.38 to $1.09. For a business like Asda which has low margins and was highly leveraged, that was close to a death knell. Even now with the pound having recovered to $1.35 it's still in major trouble largely due to the ongoing cost of living crisis and food inflation. With the company trying increasingly desperate measures to stay afloat. Such as getting rid off security staff and forcing new terms and conditions on staff such as shop employees being forced to work in the warehouses.
Market awareness of Liz Truss's 'mini-budget' plans were well before 19 Sep. Weirdly enough markets can get spooked by things that look likely or even possible (Liz winning Tory leadership election) and things that are rumoured/suggested (bringing in a unfunded mini budget that she made public she was planning to do) before they are officially announced.
Thinking that impacts to the market only materialise when she officially announced it is frankly very naive. The effects started from Aug and only increased as it this became more and more of a certainty until the plans were abandoned, Kwarteng was fired, and an actual sensible Chancellor, Hunt, came in to recover with various measures in addition to just straight up dropping the batshit crazy unfunded budget plan.
Now what happened to the £ between beginning of Aug 2022 to 03 Oct when the market was told the 45% income tax wasn't going to be dropped, 14 Oct when the market was told the budget was scrapped, 17 Oct when Hunt was going to be Chancellor, and 20 Oct when they were assured the whole gov approach was scrapped when Truss announced she was resigning, compared to the £ before and after? Oh that's interesting...
Actually looking back at it it DID go below that figure but it was so brief it's actually been averaged out of the chart, it's below the time interval sample size as the bank of England intervened and then they reversed the budget. It dropped from 1.10 to 1.03 then very quickly reversed, it was back to 1.08 on the same day.
So she did move it significantly for a very short time, I'm big enough and ugly enough to accept I'm ... slightly wrong ;)
The pound clearly recovers quickly, it's insanely overstated how much it affected things, within a month it was above where it had been in the first place. But it's irrelevant.
The ASDA deal happened in ~ 2020. This was a blip in 2022. The ASDA debt was denominated in pounds in 2021 and is now AFAIK euros, not dollars (not that it would have mattered, see above). This is 2026 and it is paying a huge amount to service this debt. The ASDA problem is nothing to do with Liz Truss, (who as I say I don't like and I think is a nutter!), it's the fact there was a ridiculous deal allowed by a PE company to load ASDA up with debt.
I really don't understand how this is legal. It should be regulated to protect workers and consumers who will be the ones who suffer when it all goes pear shaped.
There is economic benefit to an entity. Apollo are an aircraft lessor. They want easyJets order book. To see how this ends up, looks at IAG and Aer Lingus
A privately owned business taking loans off private banks with the risk absorbed by those banks.
There's really nothing that should be illegal about this it happens across pretty much every business.
To bring discussion closer to what we should be discussing on this sub, in business this is called gearing and a company that believes it has good growth prospects should always carry a healthy amount of debt since it can accelerate growth. After all the whole purpose of a business should be to take money borrowed at lower costs and generate larger returns than the cost.
So all this shows is that the private owners believe they can leverage a capital injection to grow the business even more.
It sounds silly, but we've built our countries finances on the same assumption - we are borrowing hundreds of billions at 5% to fund government spending now so that we hopefully will have a larger economy to pay it back later.
But this isn’t what’s happening… These companies aren’t being loaded up with debt to grow the business quicker they’re being loaded up with unmanageable amounts of debt to just distribute the money to shareholders, or in the case of leveraged buyouts to get the money to pay the previous shareholders.
100%. Moreover I seem to remember that Castlelake thought there was a lot of embedded value within EZJ, from its owned aircraft through its prime airport slots (like at Gatwick). And there’s the loyalty/holidays programmes which can unlock significant value as well.
I agree that a well managed debt can help to deliver growth or achieve goals, but there should be some limits to leveraging debt onto a company during the purchase of that company. £3 billion is almost two thirds of its entire valuation. It seems incredibly unlikely that easyJet will grow to the degree that they can repay that loan through generated revenue while remaining profitable.
And the risk is not only with banks. It's clearly with workers too.
The banks can decide for themselves whether Easyjet can possibly grow enough to repay the debt. No need for the Govt to meddle in a fair transaction between two private counterparties
It seems Apollo wants to increase the income per passenger and lesser the costs as to have a bigger margin, at the same time they expect the company to take more debt and be able to pay more interests, including the currency effect (debt expressed in dollars).
This reads like Apollo fund trying to squeeze everything they can from EasyJet until they are able to sell it for a sweet profit (considering the reselling price + current flow of profits for the quarters they hold the company), or the company crashes.
I’m curious to see how will they be able to increase final prices while enshittificating the service (more income + less cost/investment), while also increasing the company capital costs.
Guys like this kind of fund are just a capitalist cancer and don’t offer any advantage, just killing businesses and jobs, the long term economical benefit, for a short term squeeze so they can reap profits for themselves at the cost of the past (the effort it took to build the company) and the future.
The only way left to save is for EasyJet to alter its business model where it generally serves the main airports of cities rather than the Ryanair/Wizzair strategy of using secondary airports.
In which case they’ll become completely indistinguishable from the former two, lose business travel and compete on price only. That’s a pretty miserable position for them to be in.
The Ultra low-cost carrier model only works when fuel prices are low. Especially since most ULCC flyers are for leisure, when fares are too expensive, they simply don't make the trip at all. ULCCs can't leverage their rewards program like American either to survive, since it hasn't reached a critical capacity. Ryanair is also struggling like so many other ULCCs, but they are I think the largest in the EU.
Given Apollo's links to Epstein via Leon Black, I'm sure there are other nefarious skeletons in their closet beyond the sadly legal plundering and exploitation they're able to get away with. Also worth looking into the other partners and their links with real estate (the perfect vehicle for money laundering). If only we had a functioning DOJ.
Its so depressing. They're just deploying capital so they don't have to return it. There is no serious business case, you can't do an LBO at this scale on a business that is quite so low margin.
I think it's less globalisation (although actually global movement of capital has a lot to answer for) but more over-financialisation. The big profits simply aren't in producing good or services anymore, but in financial alchemy like this, which serves nobody but those who control the capital.
I believe they're talking in a more metaphorical sense than anything. Asset stripping still happens but the playbook has moved on and leveraged buyouts operate using the same core philosophy and many of the same tools too.
Leveraged buyouts are one of the clear modern successors of the old-school style of asset stripping.
What they say they're gonna do and what they actually do are two entirely separate things. When PE acquires large, mature companies they nearly always go down the pan.
Saddling companies with massive debts and selling off assets is hardly creating a healthy company. That's part of the reason why PE backed companies go bankrupt at higher rates than non-PE ones.
You didn't actually make a cogent point there, just quoted the size of the industry and then insulted me.
You can easily point at dozens of large, healthy companies that have been dismantled and wrecked by private equity. It's gotten to the point that it's become a meme because it happens so often
Ryanair Group CEO Michael O'Leary just may well be correct. He reckons the Europe airline market is heading towards 4 major carriers in Ryanair, Lufthansa, IAG, and Air France-KLM. EasyJet were best positioned to disrupt that.
It's absurd this is allowed to happen when we all know the outcome will be a worse service for consumers and higher prices. Quite possibly there might even eventually be a degradation in safety standards.
Sadly the UK govt never seems to push back on foreign PE takeovers because they boost our FDI stats, which politicians love pointing to as a marker for success.
I wonder how many of these predictions are going to happen:
Aircraft Lease-Back Arbitrage (~£2.5B to £3.5B):
over half of easyJet's 360+ Airbus fleet is owned outright. By executing a complete sale-and-leaseback of these physical assets to global aircraft lessors, the private equity firm can immediately extract billions in upfront cash to pay off their own initial buyout debt.
Labor & Roster Cost Reductions (~£200M to £300M annually):
Breaking union contracts and shifting crews to lighter, outsourced, or flexible local contracts typically shaves 10% to 15% off total airline labor expenses. Combined with optimizing crew rosters to eliminate mandatory rest-day payouts, this adds hundreds of millions directly to annual profit margins.
Spin-off Valuation of Capital-Light Units (~£1.5B+):
Fast-growing, high-margin, capital-light divisions like easyJet holidays (which has rapidly grown into a massive tour operator) can be cleanly separated from the capital-heavy airline business. Selling or IPO-ing this entity alone can yield an immense return on investment.
Unsecured Debt & Compensation Forgiveness (~£500M+):
Walking away from outstanding trade supplier invoices, consumer ticket refunds, and regulatory delay compensation claims completely cleanses the balance sheet at the expense of unsecured creditors.
Odd to have an economics sub with such limited understanding of PE. Let’s see how this plays out, but to declare EasyJet dead on arrival is a bit useless. Apollo are pretty smart with airlines, this isn’t their first rodeo.
It won’t work, nothing to do with PE, more so they seem to want to completely change the entire airline not a small change, perhaps even rebranding as easy branding still will belong to Stellios.
More so they are ruining the business they had, easy jet is for cheap travellers and for business people that have to pay their own flights or are in small budget companies, that’s what works perfect for them, repositioning to become more business oriented and making every auxiliary pricing more expensive will crash it as Europe has too many competitors, Jet2, Wizz Air and Ryanair for low cost, and business travel won’t just shift from the well established airlines.
They are already getting expensive as is on my routes I take often from London to Amsterdam, so much so I already sometimes take KLM, the price increase will just drive all customers to KLM for that route.
They work currently as of the low cost carriers they are slightly better with everything, Apollo will remove this slightly better model and make it similar or worse to other low costs carriers while clearly wishing to increase tickets even more for the revenue.
Short answer is, this is most certainly dead already, if it survives this without any hitches I will eat my shoe.
Probably because unless you've been living under a rock, everyone will have a company or service you once liked to use, get run into the ground, then shuttered by PE
Sure, that may be true, but the vast majority of PE backed businesses do not go bankrupt - so then you don’t really notice.
As an example, Apollo has invested in or provided debt financing to Sun Country Airlines, Volotea, Aeromexico, Atlas Air, SAS, Air France-KLM, Delta, GOL and Virgin. All of these airlines are still flying, I expect Easyjet to be the same.
It only works if you can find another sucker to take off their hands.
That's why the Thames Water has gone so bad, so many PE companies load it with debt and pass it on. The current owners were left holding the parcel.
This has happened a few times in UK they buy the company extract the pension pot and anything else of worth, then sell the company on for cheap because they took the value out, then company goes under as those they sell it to do but realise how bad it is.
An Airbus A320neo costs around $100 million at list price. Nobody buys a fleet of 300+ aircraft with cash from a bank account. They use asset-backed debt or sale-and-leaseback agreements. Because airplanes retain clear resale value, banks are happy to lend against them.
Who are the lenders who are prepared to lend, knowing the inevitable outcome? Is it Apollo themselves? Or is there some bank or consortium who is happily going to lose £3bn for the debt interest?
Honestly, I cannot understand the logic - there are so many examples of companies which have been healthy and producing returns, that have gone under as a result of this sort of deal, so why do they persist?
Thank you. I'm here to learn. And you prompted me to find out more...
Yes, it looks like the 10 year success rate in the commercial aerospace industry is pretty good, around 90%+, but the success rate in debt loaded buyouts of airlines is 40 to 50%. I used AI to discover these facts, so take them with some skepticism.
AI also thinks that the failures are down to shocks which reduce passenger capacity, which can't be hedged; possible high interest rates on debt together with the fact that airline margins are small, so potential cashflow problems; and lack of tangible collateral - though in Easyjet's case, they do own about half their fleet. AI also suggests that they already optimise here, by using sale and leasebacks to raise cash when needed.
So, your comment made me initially think 90% success rate was a great driver. But when I looked into the success rate in commercial airlines, the original question seems to come back...
Except now it's 50% chance you'll do great, 50% chance you'll lose most the loan. Or maybe 40/60.
Seems pretty high risk compared to other investments, so I guess those owned planes become collateral, and Easyjet loses the lease and buyback mechanism, and the interest rate will be high.
It’s definitely true that Airlines are some of the trickiest PE investments. Quite prone to external shocks (e.g. 9/11, GFC, COVID), extremely capital intensive, slim margins and highly regulated. If you only had one shot at making money, you probably wouldn’t do an airline deal, but it works within a fund with some diversification (Apollo usually has c.15-20 deals in a fund). You’d be willing to take a punt if you see a path to 4-5x your money (rather than the 2.5x PE usually shoots for), even if the downside risk is a total capital loss.
Thank you. I did mean it more as a rhetorical question to highlight the utter idiocy of the lending - short term profit against loss of the airline, even if the collateral is some jets.
But I do have some Barclays accounts. Maybe I should not be trusting a bank that backs this.
"Who are the lenders who are prepared to lend, knowing the inevitable outcome" -> thats exactly the question you need to ask. So many people here are acting like PE is a free money glitch. Essentially the loans will be leveraged against the assets or stock price of easy jet, as such they have a high confidence of return.
The main reason these deals happen is an investor feels that a company is underpriced relative to its assets. They then borrow money to buy the company and try extract more value than the loans required. Its not without risk however as should they fail then PE may noy be able to recover their initial sizable investment.
This needs stopped and rules put in place for the future. It's shocking that the authorities thing it's reasonable and legit for a group to "buy" a company by .. making the company itself pay for the purchase by plunging itself into crippling debt that may well ruin the company.
Anyone not familiar with how this plays out - read up on ASDAs difficulties.
What is the PE buyout going to do for them? Force more customers to love easyjet and pay more to fly? Get cheaper airport slots? Cheaper fuel? Nope nope and nope.
3 billion of debt going to be offset by .. what and in what way?
Other than some vague "expertise" hand waving theory, what will they bring other than huge debt?
It's a successful enough airline. It could just employ one of these "geniuses" on a vast salary. That'll be the "vague "expertise" hand waving theory" then.
Access to capital. Who the hell gets 3 billion in debt, more than half the apparent value of the entire company, to get "easier access to capital"?
It's like taking out a huge bank loan to get a better limit on your credit card.
robustofilth | 16 days ago
Ryan air will be laughing at this shit show of an idea. EasyJet will be bust in a few years and someone else will pick it up for a song. These types of deals should be illegal.
ICLazeru | 16 days ago
It'll be fine. Just wait and see, in a couple days they'll announce their pivot to AI.
james_the_wanderer | 16 days ago
EasyJetxAI - the UK's first £1 trillion company.
ICLazeru | 16 days ago
They'll build an unsinkable floating data center, the TitanAIc.
TheRetardedGoat | 15 days ago
Data centres in the air to cool with the cold atmosphere at 10k ft
Jet2work | 16 days ago
Why fly when you can look at you destination online
NectarineNo2982 | 16 days ago
AIsyjet
Alarmed-Plantain213 | 15 days ago
Probably Ryan air.
robustofilth | 15 days ago
The slots it would buy but unlikely to be the airline
fire-wannabe | 16 days ago
If you want to buy the company, make an offer, then you can choose how to structure the balance sheet.
BillWilberforce | 16 days ago
But we know that PE, Hedge Funds and leveraged buy outs. Virtually always destroy the company. To the detriment of society as a whole. No major country operates a truly laissez-faire economy, with no regulation as it's been proven over and over again. That companies operate solely in their own best interests and often on a short term basis. With one of the most recent examples being Taylor Farms spending money to lobby the Trump administration to remove "unnecessary" red tape, in the field of food hygiene and now seemingly in a death spiral, due to their diarrhoea parasite outbreak. Where retailers can't give away Taylor Farm salads and that is unlikely to change. Perrier mineral water has never recovered from a benzene contamination issue back in the late '80s/early '90s.
fire-wannabe | 16 days ago
Virtually always destroys the company? This is supposed to be a serious sub. Go sell crazy some place else.
gtne91 | 16 days ago
And sometimes destroying the company is the most proftable thing to do.
I will let Danny Devito explain:
https://youtu.be/gtvTY3hYYQ4?is=DN4GLlzXnnkvgqXl
Edit: the best real life example of exactly this is Sears. The dept store was dragging down the value of the overall company.
fire-wannabe | 16 days ago
Asset stripping and leveraging a company up are entirely separate disciplines.
Rare_Touch8636 | 16 days ago
What are you on about?
robustofilth | 16 days ago
Debt should not be transferable to an asset.
ryancompte | 16 days ago
What does this statement even mean? What happens in reality is that the EasyJet assets are the underlying collateral for the debt. It isn’t ’transferring’ anywhere?
gtne91 | 16 days ago
He is opposed to mortgages too, apparently.
Other-Crazy | 16 days ago
Debt is the entire reason that people were allowed to incorporate a company.
RandomLurker100 | 16 days ago
Uh, yes but not quite.
Yes to the extent that the asset is operating as a collateral. No because the lenders do not usually have recourse to the sponsors and are restricted to the target group and the cash flow of the target group alone to service debt. With a mortgage, it's not the underlying asset that is expected to service debt, it's the owner of the asset. If they can monetise their assets to make money (through an Airbnb, for example), then that's usually fair game, but ultimately the lenders have recourse to you or your company as the owners as well, which isn't true for leveraged buyouts.
That said, the lenders do want their money back, and unlike what people believe, they will not allow the sponsor to strip the company away for parts, pay themselves the dividends, and let the company die and leave the lenders with scraps to sell off at liquidation, receiving a pittance in return. As you would imagine, banks are not stupid to just let their money go to waste, and the loan documents typically place restrictions on dividend payouts, asset disposals, and any money going out of the target group, to keep the sponsor incentivised to have the company make profits as a going concern.
GeorgeSThompson | 15 days ago
"banks are not stupid to just let their money go to waste" -> 90% of the people on the sub miss this part
robustofilth | 15 days ago
No it is that easy. Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work.
robustofilth | 16 days ago
EasyJet like most airlines has few assets. They borrow billions, buy the asset. Transfer the debt to it and pay out a fortune in dividends whilst selling off what assets to company has and lease them back. Until its debt is just junk. It’s a dumb way to do business and doesn’t work.
GeorgeSThompson | 15 days ago
This dosent make sense. You seem to think they can borrow to buy an asset, sell the asset, and make easy money. It dosent work like that you will have to pay back the debtors first
robustofilth | 15 days ago
No it is that easy. Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work.
GeorgeSThompson | 15 days ago
"I’m amazed how little people on this sub understand how these transactions work" -> you dont understand it lol.
If its that easy then why does everyone not do it?
Like where do they get 3 billion profit from in this? Really you are so close. Suppose they buy it for 4 billion (3 billion via debt, 1 billion their own caprial). So day one the business is now worth 1 billion (as there is 3 billion more debt on a previous valuation of 4 billion).
Suppose they do nothing to grow the business or pay off the debt, so when they sell it its worth 1billion
So they put 1 billion in at the start and get 1 billion out at the end. They havent made the 3 billion.
I mean your assumption is that they would be able to sell for 4 billion even with the additional debt. Which is a nonsense unless they have increased the value of the business.
There's no free lunches
GeorgeSThompson | 15 days ago
Also if its say a 4 billion pound company and you borrowed 3 billion to buy it, then you can't just borrow another 3billion to pay yourselves dividend (as no one is going to lend you 6 billion against a 4 billion company)
robustofilth | 15 days ago
These happen all the time. A quick read of the ft tell you that buddy
robustofilth | 15 days ago
You did not read or even comprehend what I wrote did you. This is basic stuff. I never mention profit or paying off debt. That’s grade school thinking. I said fees. Dividends. Quite different.
ryancompte | 16 days ago
EasyJet has £11.5 billion in assets. Not sure what you are classifying as ‘few’.
robustofilth | 16 days ago
And about 10 odd billion euros in liabilities. Those are quite important my dear
Bilb- | 16 days ago
This would solve a lot of western issues instantly however the initial hit will stop anyone taking the step
ParkingConcentrater | 16 days ago
This would stop everyone from being able to buy a house.
Snappy0 | 16 days ago
Unless a government made provisions for personal dwellings.
robustofilth | 16 days ago
No. You borrow money against an asset. You can’t strip the house and mortgages contain provisions that govern what you can do. You do know how they work right?
Bilb- | 16 days ago
Not really, a mortgage is secured against the asset, the house. What it will stop it buying a house using borrowed money against another asset, which was likely also purchased against another asset under dept etc...
GeorgeSThompson | 15 days ago
But you cant do that. You cant leverage the same asset twice just like I cant get two mortgages on my house
fire-wannabe | 16 days ago
Nonsense statement.
robustofilth | 16 days ago
No it isn’t.
ParkingConcentrater | 16 days ago
Guess you and everyone cant get a mortgage for a house if the bank cant take security over the asset you are proposing to buy with a loan.
robustofilth | 16 days ago
No. You borrow money against an asset. You can’t strip the house and mortgages contain provisions that govern what you can do. You do know how they work right?
robustofilth | 16 days ago
What a dumb thing to say.
robustofilth | 16 days ago
You also realise you can’t sell a house with the mortgage on it right? ..the level of education on an economics sub is stunningly bad 🙄
GeorgeSThompson | 15 days ago
What do you think happens if you sell a buinsess after loading it with debt? Its not an infinite money glitch
GeorgeSThompson | 15 days ago
Have you ever bought a house?
robustofilth | 15 days ago
Yes. And you don’t buy it with a debt in place from the previous owner or sell it with the mortgage you moron.
GeorgeSThompson | 15 days ago
You seem very upset by this. Its really the same mechanic, it dosent really make much difference if you have to settle the debt before transferring it
robustofilth | 15 days ago
No you don’t. I’m not upset other than at the lack of financial knowledge of people in an economics sub 🤣
robustofilth | 15 days ago
Apollo will buy it with about 500-1bn of their money on the table and borrow the rest. As it will be ‘their’ asset they will be in a position to restructure the debt onto the business so now takes on the debt. Then they will borrow the 3 billion to pay themselves fees / dividends etc and reduce costs in the company to service the debt and keep it manageable. And then in about 5/6 years either float/merge or sell it. All very legal. All very doable. 3bn return for 500m to 1bn. A good days work. I’m amazed how little people on this sub understand how these transactions work. You seem to think you buy a house in the same way 🙄
Rare_Touch8636 | 16 days ago
What deals? Buying a company?
4EcwXIlhS9BQxC8-2 | 16 days ago
With debt that is then allocated on the purchased company's balance sheets, yes.
Rare_Touch8636 | 16 days ago
Yes, an entirely sensible way of operating that has worked successfully millions of times.
Ateist | 16 days ago
Leveraged buyouts have 20% bankruptcy rate over the following 10 years, compared to 2% baseline.
Rare_Touch8636 | 16 days ago
If we are going to use that academically impoverished study as a fact I can claim pretty much anything.
For an economics sub you lot have little grasp of economics and poor critical thinking skills
Hour_Tour | 16 days ago
So do you work for a PE firm, or..?
Rare_Touch8636 | 15 days ago
No I just understand PE
Arcille | 16 days ago
LBO’s often leave communities and the initial company much worse off way too much to call it a sensible way of operating.
The average person has much more financial literacy now compared to 20-50 years ago that they can call out LBO’s now.
Rare_Touch8636 | 16 days ago
The average person has far less financial literacy now. Read a selection of comments in this 'economics' sub as an example, maybe half a dozen people show a basic understanding of PE.
"LBO’s often leave communities and the initial company much worse off way too much to call it a sensible way of operating."
This would be true if it weren't false
ApartmentSad9239 | 16 days ago
Prove its false then
Rare_Touch8636 | 16 days ago
Simple logic dictates it is false
holistic_mystic | 15 days ago
Then please, oh enlightened one, explain said "simple logic"
Rare_Touch8636 | 15 days ago
Clearly over your head…
Arcille | 16 days ago
Caesars
Toys r us
Envision
Any Clearlake deal lmao
Chrysler
I can go on and on with examples. If LBO’s have a 66% success rate then it’s a trade worth pursuing for PE firms however a 1/3 chance of people losing jobs and making the communities worse is objectively bad for the community not sure how you don’t understand this.
Rare_Touch8636 | 16 days ago
Oh no some unsuccessful deals, and I'm sure Clearlake with their $200b AUM really care what you think.
In reality the success rate for LBOs is over 99%, so a 99% chance of people gaining jobs and making the communities better is objectively good for the community not sure how you don’t understand this.
Arcille | 16 days ago
II did a study which found 20% of companies undergoing LBO go bankrupt within 10 years so no idea where you are pulling this 99% figure out of your ass from.
You clearly do not work in private credit or know people in private credit to know enough about deals that happen to say 99% are successful.
Rare_Touch8636 | 16 days ago
II did a study which found 99% of companies undergoing LBO are super successful within 10 years so no idea where you are pulling this 20% figure out of your ass from.
We are talking about PE and now you are bringing up PC? Did the little bot confuse themself?
comfortably_nom | 16 days ago
A succulent flying company
BillWilberforce | 16 days ago
EasyJet to collapse in 5 years. Especially if most of its debt is denominated in dollars. The Asda deal really went pear shaped when Liz Truss crashed the economy and the pound. Making it's dollar denominated debt even more expensive to service.
CountSuma | 16 days ago
And guess who will bail out the creditors, after everything is sold for pennies to the pound.
BillWilberforce | 16 days ago
It's pretty rare for the UK government to bail out airlines. I don't think it's happened since the 1970s and Easyjet whilst big isn't too big to fail. BA on the other hand......
BritRedditor1 | 16 days ago
RemindMe! 5 years
Ok-Selection-8598 | 16 days ago
If that was a crash wtf is it now? Rates are way higher
Timely_Cake_917 | 16 days ago
That was self-caused (by the budget)
Currently is external factors (oil / tariffs /:etc) that we can't control
Fun_Marionberry_6088 | 16 days ago
>Currently is external factors (oil / tariffs /:etc) that we can't control
To some extent yes, but that doesn't explain why we have higher rates than the Eurozone or US.
Government fiscal policy is a major driver of that.
bbjwhatup | 16 days ago
Brexit as well.
Timely_Cake_917 | 16 days ago
Is vald, but Brexit was prior to pork market's budget and queen killing reign.
BillWilberforce | 16 days ago
The Pork and Cheese markets speech was in 2014. The referendum was in 2016. "Proper" Brexit was the start of 2021.
Snappy0 | 16 days ago
The UK left the EU in January 2020. Any damage caused was dwarved by COVID.
Ok-Selection-8598 | 16 days ago
And nothing to do with LDIs….
HandyRoyd | 16 days ago
There is an entire insane mythology repeated by an echo chamber as to what Liz Truss did, and they don't care about the facts. They just repeat what the echo chamber repeats.
I don't like her but the absolute NONSENSE that is said about what was after all recent history .. wow.
Z3r0sama2017 | 16 days ago
What? She's the shortest serving PM we ever had and that's with a 2 week freebie from when Lizzy died. She absolutely shat the bed.
HandyRoyd | 16 days ago
Agreed she was crap, I'm sooo glad she's not PM. She's still supporting Trump from what I can see, she needs a padded cell.
But how does this prove she "crashed the economy"?
HandyRoyd | 16 days ago
Dear god so the ASDA financial trouble is .. due to Liz Truss? And you are posting this on an actual economics forum?
I don't like her, she's nuts, but she didn't "crash the economy". And she didn't "crash the pound".
Narrow-Salad8779 | 16 days ago
Weird hill to die on
HandyRoyd | 16 days ago
So you think that it's reasonable for people to say things that are just untrue, because they don't like the target of their derision, and the person who is trying to bring the discussion back to the facts and the truth is the problem. That everyone else should stay quiet and look at the floor or join in with the untruth to not be .. "unpopular" or something?
That's how playground bullying works, it shouldn't be how adults work.
If people stuck to facts and the truth, this world would be a damned sight less of a mess, instead it's going the opposite way .. :(
Thisoneissfwihope | 16 days ago
The deal was dumb to begin with, Truss’s mishandling of the economy made it worse. Happy now?
HandyRoyd | 16 days ago
If it cost them 1 pence more then that's worse.
BillWilberforce | 16 days ago
It was a bad deal to start with. Two brothers with extensive knowledge of the petrol station business, along with an American hedge fund. Taking over a major food retailer that had a few petrol stations. With Walmart retaining a 10% share.
Shortly afterwards the brothers had a major falling out when one of them had an affair, with an employee of their auditing firm. As they both lived in the same house with their extended family. With the other brother and their parents siding with the wife and her children.
The deal was financed by the American hedge fund/PE company in dollars. Within a few months the pound went from $1.38 to $1.09. For a business like Asda which has low margins and was highly leveraged, that was close to a death knell. Even now with the pound having recovered to $1.35 it's still in major trouble largely due to the ongoing cost of living crisis and food inflation. With the company trying increasingly desperate measures to stay afloat. Such as getting rid off security staff and forcing new terms and conditions on staff such as shop employees being forced to work in the warehouses.
HandyRoyd | 16 days ago
"crashed the pound"
Here is a nice chart of the GBP / USD exchange rate. Note the bottom at 19/09/22. The liz truss budget was 23/09/22.
https://uk.finance.yahoo.com/quote/GBPUSD%3DX/
Now that we've real data in front of us, show on the chart where she "crashed the pound"?
BadahBingBadahBoom | 16 days ago
Market awareness of Liz Truss's 'mini-budget' plans were well before 19 Sep. Weirdly enough markets can get spooked by things that look likely or even possible (Liz winning Tory leadership election) and things that are rumoured/suggested (bringing in a unfunded mini budget that she made public she was planning to do) before they are officially announced.
Thinking that impacts to the market only materialise when she officially announced it is frankly very naive. The effects started from Aug and only increased as it this became more and more of a certainty until the plans were abandoned, Kwarteng was fired, and an actual sensible Chancellor, Hunt, came in to recover with various measures in addition to just straight up dropping the batshit crazy unfunded budget plan.
Now what happened to the £ between beginning of Aug 2022 to 03 Oct when the market was told the 45% income tax wasn't going to be dropped, 14 Oct when the market was told the budget was scrapped, 17 Oct when Hunt was going to be Chancellor, and 20 Oct when they were assured the whole gov approach was scrapped when Truss announced she was resigning, compared to the £ before and after? Oh that's interesting...
HandyRoyd | 16 days ago
Actually looking back at it it DID go below that figure but it was so brief it's actually been averaged out of the chart, it's below the time interval sample size as the bank of England intervened and then they reversed the budget. It dropped from 1.10 to 1.03 then very quickly reversed, it was back to 1.08 on the same day.
So she did move it significantly for a very short time, I'm big enough and ugly enough to accept I'm ... slightly wrong ;)
The pound clearly recovers quickly, it's insanely overstated how much it affected things, within a month it was above where it had been in the first place. But it's irrelevant.
The ASDA deal happened in ~ 2020. This was a blip in 2022. The ASDA debt was denominated in pounds in 2021 and is now AFAIK euros, not dollars (not that it would have mattered, see above). This is 2026 and it is paying a huge amount to service this debt. The ASDA problem is nothing to do with Liz Truss, (who as I say I don't like and I think is a nutter!), it's the fact there was a ridiculous deal allowed by a PE company to load ASDA up with debt.
It was financed in pounds in 2021 as stated here:
https://www.aoshearman.com/en/news/ao-shearman-advises-banks-consortium-on-asdas-multi-billion-high-yield-bond-and-loan-refinancing
and I believe in Euros now:
https://www.standard.co.uk/business/asda-refinances-ps3-2-billion-debt-at-higher-interest-rates-b1155438.html
.. and it wouldn't have mattered if it was in dollars anyway, see above.
Remote_Foundation873 | 16 days ago
I have been working in FX for over 11 years. She crashed the pound.
Kadoomed | 16 days ago
I really don't understand how this is legal. It should be regulated to protect workers and consumers who will be the ones who suffer when it all goes pear shaped.
Tammer_Stern | 16 days ago
See MG, BHS and others.
Buy company cheaply, load with debt, pay yourself large salary. Continue until you can’t any more. Walk away with zero penalties.
bbjwhatup | 16 days ago
I highly recommend reading the book on how the market on junk bonds really emerged and spiraled in the 80s, its called ”The Predators’ Ball”
Tammer_Stern | 16 days ago
Thanks buddy. For clarity the companies I mentioned are based in the UK.
roleplayersir | 16 days ago
Or the film Greed, which is based on a fictional BHS
SaamsamaNabazzuu | 16 days ago
There's also "These Are The Plunderers" - Gretchen Morgenson, which includes the villain in this arc, Apollo Global Management.
Rare_Touch8636 | 16 days ago
Or look at the hundreds of billions in very succesful exits Apollo has chalked up
enclosedcrystal999 | 16 days ago
I'll take "I don't understand LBOs" for $500 Alex.
Tammer_Stern | 16 days ago
Leveraged buy outs are another whole can of worms and a travesty at best.
Dilated_Auntie6970 | 16 days ago
There is economic benefit to an entity. Apollo are an aircraft lessor. They want easyJets order book. To see how this ends up, looks at IAG and Aer Lingus
maskapony | 16 days ago
A privately owned business taking loans off private banks with the risk absorbed by those banks.
There's really nothing that should be illegal about this it happens across pretty much every business.
To bring discussion closer to what we should be discussing on this sub, in business this is called gearing and a company that believes it has good growth prospects should always carry a healthy amount of debt since it can accelerate growth. After all the whole purpose of a business should be to take money borrowed at lower costs and generate larger returns than the cost.
So all this shows is that the private owners believe they can leverage a capital injection to grow the business even more.
maximumfacemelting | 16 days ago
I have a lovely bridge that has a healthy amount of debt, great growth prospects and would benefit from your personal capital injection.
ibxtoycat | 16 days ago
It sounds silly, but we've built our countries finances on the same assumption - we are borrowing hundreds of billions at 5% to fund government spending now so that we hopefully will have a larger economy to pay it back later.
Quoggle | 16 days ago
But this isn’t what’s happening… These companies aren’t being loaded up with debt to grow the business quicker they’re being loaded up with unmanageable amounts of debt to just distribute the money to shareholders, or in the case of leveraged buyouts to get the money to pay the previous shareholders.
slimkay | 16 days ago
100%. Moreover I seem to remember that Castlelake thought there was a lot of embedded value within EZJ, from its owned aircraft through its prime airport slots (like at Gatwick). And there’s the loyalty/holidays programmes which can unlock significant value as well.
TactileTom | 16 days ago
Wait until people find out about the tax efficiencies of taking on a bunch of debt...
YouLostTheGame | 16 days ago
Debt is tax efficent?
(And rightly so)
Kadoomed | 16 days ago
I agree that a well managed debt can help to deliver growth or achieve goals, but there should be some limits to leveraging debt onto a company during the purchase of that company. £3 billion is almost two thirds of its entire valuation. It seems incredibly unlikely that easyJet will grow to the degree that they can repay that loan through generated revenue while remaining profitable.
And the risk is not only with banks. It's clearly with workers too.
No_Concept4683 | 16 days ago
The banks can decide for themselves whether Easyjet can possibly grow enough to repay the debt. No need for the Govt to meddle in a fair transaction between two private counterparties
onechroma | 16 days ago
It seems Apollo wants to increase the income per passenger and lesser the costs as to have a bigger margin, at the same time they expect the company to take more debt and be able to pay more interests, including the currency effect (debt expressed in dollars).
This reads like Apollo fund trying to squeeze everything they can from EasyJet until they are able to sell it for a sweet profit (considering the reselling price + current flow of profits for the quarters they hold the company), or the company crashes.
I’m curious to see how will they be able to increase final prices while enshittificating the service (more income + less cost/investment), while also increasing the company capital costs.
Guys like this kind of fund are just a capitalist cancer and don’t offer any advantage, just killing businesses and jobs, the long term economical benefit, for a short term squeeze so they can reap profits for themselves at the cost of the past (the effort it took to build the company) and the future.
ikzeidegek | 16 days ago
It seems very, very hard to believe that income per passenger can be increased at EasyJet, or that costs can be reduced meaningfully.
dagelijksestijl | 16 days ago
The only way left to save is for EasyJet to alter its business model where it generally serves the main airports of cities rather than the Ryanair/Wizzair strategy of using secondary airports.
In which case they’ll become completely indistinguishable from the former two, lose business travel and compete on price only. That’s a pretty miserable position for them to be in.
ikzeidegek | 16 days ago
It is hard for me to see how they can quickly become more profitable by copying Ryanair.
If you own something, you have a right to destroy it, which clearly is what is happening here.
dagelijksestijl | 16 days ago
I’m not saying it’d make them more profitable. I’d say that any stupid cost-cutting moves will come from that.
mikeydoc96 | 16 days ago
This is pretty much spot on.
My company is not allowed to book Ryanair unless there's no other feasible routes or the price difference is drastic.
Rare_Touch8636 | 16 days ago
Last I checked Apollo had $1T in AUM, I reckon they know what they are doing.
Maxpowr9 | 16 days ago
The Ultra low-cost carrier model only works when fuel prices are low. Especially since most ULCC flyers are for leisure, when fares are too expensive, they simply don't make the trip at all. ULCCs can't leverage their rewards program like American either to survive, since it hasn't reached a critical capacity. Ryanair is also struggling like so many other ULCCs, but they are I think the largest in the EU.
No_Concept4683 | 16 days ago
Not that hard to believe when you already have two ultra-LCC in Europe (Wizz+Ryan).
The other clear lever is obviously Easyjet Holidays, which is quite a nice biz with significantly better margins.
Snappy0 | 16 days ago
They can't put fares up as they'll be undercut heavily in the Europe market.
Ryanair and even Jet2 will end up eating their lunch in the UK market.
SaamsamaNabazzuu | 16 days ago
Given Apollo's links to Epstein via Leon Black, I'm sure there are other nefarious skeletons in their closet beyond the sadly legal plundering and exploitation they're able to get away with. Also worth looking into the other partners and their links with real estate (the perfect vehicle for money laundering). If only we had a functioning DOJ.
Erratic_Goldfish | 15 days ago
Its so depressing. They're just deploying capital so they don't have to return it. There is no serious business case, you can't do an LBO at this scale on a business that is quite so low margin.
Leftleaningdadbod | 16 days ago
It’s a suckers deal. Asset stripping was rife in the 70-80s, and this is the equivalent of today. The result of over-globalisation to coin a phrase!
Nonions | 16 days ago
I think it's less globalisation (although actually global movement of capital has a lot to answer for) but more over-financialisation. The big profits simply aren't in producing good or services anymore, but in financial alchemy like this, which serves nobody but those who control the capital.
Rare_Touch8636 | 16 days ago
How is this asset stripping?
Boomshrooom | 16 days ago
They didn't say it was asset stripping, they said it was the modern equivalent
Rare_Touch8636 | 15 days ago
the modern equivalent of asset stripping is asset stripping…
Boomshrooom | 15 days ago
I believe they're talking in a more metaphorical sense than anything. Asset stripping still happens but the playbook has moved on and leveraged buyouts operate using the same core philosophy and many of the same tools too.
Leveraged buyouts are one of the clear modern successors of the old-school style of asset stripping.
Rare_Touch8636 | 15 days ago
The same philosophy like creating a healthy company to exit from?
Boomshrooom | 15 days ago
What they say they're gonna do and what they actually do are two entirely separate things. When PE acquires large, mature companies they nearly always go down the pan.
Saddling companies with massive debts and selling off assets is hardly creating a healthy company. That's part of the reason why PE backed companies go bankrupt at higher rates than non-PE ones.
Rare_Touch8636 | 15 days ago
Yes the $20T industry exists to make successful companies bankrupt. There is no educating the ignorant...
Boomshrooom | 15 days ago
You didn't actually make a cogent point there, just quoted the size of the industry and then insulted me.
You can easily point at dozens of large, healthy companies that have been dismantled and wrecked by private equity. It's gotten to the point that it's become a meme because it happens so often
Rare_Touch8636 | 15 days ago
Point all you want. I'm sure the $20T industry really cares what the ill-informed think of them
Keyann | 16 days ago
Ryanair Group CEO Michael O'Leary just may well be correct. He reckons the Europe airline market is heading towards 4 major carriers in Ryanair, Lufthansa, IAG, and Air France-KLM. EasyJet were best positioned to disrupt that.
Busy_Plankton_3588 | 16 days ago
The government shouldn’t allow this practice to happen. And they sure as shit shouldn’t bail out the pensions when it inevitably goes tits-up…
hamnam7975 | 16 days ago
This will be an incredibly marginal position for any large pension fund.
el_dude_brother2 | 16 days ago
The government don’t bail them out any more, me and you do. All pension schemes pay a levy to fund bust ones
Busy_Plankton_3588 | 16 days ago
Yes essentially correct. I've been reading up about this to email my MP. It's levies on pension scheme investment returns etc.
yingguoren1988 | 16 days ago
It's absurd this is allowed to happen when we all know the outcome will be a worse service for consumers and higher prices. Quite possibly there might even eventually be a degradation in safety standards.
Sadly the UK govt never seems to push back on foreign PE takeovers because they boost our FDI stats, which politicians love pointing to as a marker for success.
Ateist | 16 days ago
I wonder how many of these predictions are going to happen:
Aircraft Lease-Back Arbitrage (~£2.5B to £3.5B):
over half of easyJet's 360+ Airbus fleet is owned outright. By executing a complete sale-and-leaseback of these physical assets to global aircraft lessors, the private equity firm can immediately extract billions in upfront cash to pay off their own initial buyout debt.
Labor & Roster Cost Reductions (~£200M to £300M annually):
Breaking union contracts and shifting crews to lighter, outsourced, or flexible local contracts typically shaves 10% to 15% off total airline labor expenses. Combined with optimizing crew rosters to eliminate mandatory rest-day payouts, this adds hundreds of millions directly to annual profit margins.
Spin-off Valuation of Capital-Light Units (~£1.5B+):
Fast-growing, high-margin, capital-light divisions like easyJet holidays (which has rapidly grown into a massive tour operator) can be cleanly separated from the capital-heavy airline business. Selling or IPO-ing this entity alone can yield an immense return on investment.
Unsecured Debt & Compensation Forgiveness (~£500M+):
Walking away from outstanding trade supplier invoices, consumer ticket refunds, and regulatory delay compensation claims completely cleanses the balance sheet at the expense of unsecured creditors.
No_Concept4683 | 16 days ago
Odd to have an economics sub with such limited understanding of PE. Let’s see how this plays out, but to declare EasyJet dead on arrival is a bit useless. Apollo are pretty smart with airlines, this isn’t their first rodeo.
No_Sugar8791 | 16 days ago
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BritRedditor1 | 16 days ago
Agreed. Economics isn’t PE.
One has to work in the industry or have studied deeply to understand the levers at play here.
kj_gamer2614 | 16 days ago
It won’t work, nothing to do with PE, more so they seem to want to completely change the entire airline not a small change, perhaps even rebranding as easy branding still will belong to Stellios.
More so they are ruining the business they had, easy jet is for cheap travellers and for business people that have to pay their own flights or are in small budget companies, that’s what works perfect for them, repositioning to become more business oriented and making every auxiliary pricing more expensive will crash it as Europe has too many competitors, Jet2, Wizz Air and Ryanair for low cost, and business travel won’t just shift from the well established airlines.
They are already getting expensive as is on my routes I take often from London to Amsterdam, so much so I already sometimes take KLM, the price increase will just drive all customers to KLM for that route.
They work currently as of the low cost carriers they are slightly better with everything, Apollo will remove this slightly better model and make it similar or worse to other low costs carriers while clearly wishing to increase tickets even more for the revenue.
Short answer is, this is most certainly dead already, if it survives this without any hitches I will eat my shoe.
Z3r0sama2017 | 16 days ago
Probably because unless you've been living under a rock, everyone will have a company or service you once liked to use, get run into the ground, then shuttered by PE
No_Concept4683 | 16 days ago
Sure, that may be true, but the vast majority of PE backed businesses do not go bankrupt - so then you don’t really notice.
As an example, Apollo has invested in or provided debt financing to Sun Country Airlines, Volotea, Aeromexico, Atlas Air, SAS, Air France-KLM, Delta, GOL and Virgin. All of these airlines are still flying, I expect Easyjet to be the same.
Fantastic_Picture384 | 16 days ago
It only works if you can find another sucker to take off their hands. That's why the Thames Water has gone so bad, so many PE companies load it with debt and pass it on. The current owners were left holding the parcel.
Platform_Dancer | 16 days ago
RIP easyjet🪦⚰️ .......
We've all seen this film before - You just know it's only a matter of time for the Americans to bleed it dry and cast it aside...🛩️🔥
technomat | 16 days ago
This has happened a few times in UK they buy the company extract the pension pot and anything else of worth, then sell the company on for cheap because they took the value out, then company goes under as those they sell it to do but realise how bad it is.
dickusb700 | 16 days ago
This is crap news.
An Airbus A320neo costs around $100 million at list price. Nobody buys a fleet of 300+ aircraft with cash from a bank account. They use asset-backed debt or sale-and-leaseback agreements. Because airplanes retain clear resale value, banks are happy to lend against them.
Naive_Reach2007 | 15 days ago
Sadly the government should have the balls in the UK to stop this sort of thing as well as selling and lease back of buildings etc...
Look at asda and the crap that's gone through
It's basically the American playbook being put into action in the uk
wellthatexplainsalot | 16 days ago
Who are the lenders who are prepared to lend, knowing the inevitable outcome? Is it Apollo themselves? Or is there some bank or consortium who is happily going to lose £3bn for the debt interest?
Honestly, I cannot understand the logic - there are so many examples of companies which have been healthy and producing returns, that have gone under as a result of this sort of deal, so why do they persist?
Rare_Touch8636 | 16 days ago
Because the vast majority of GP led PE deals end up producing superb returns for everyone involved, the lenders, the LPs and the GP.
For an economics sub this place knows nothing about PE.
wellthatexplainsalot | 16 days ago
Thank you. I'm here to learn. And you prompted me to find out more...
Yes, it looks like the 10 year success rate in the commercial aerospace industry is pretty good, around 90%+, but the success rate in debt loaded buyouts of airlines is 40 to 50%. I used AI to discover these facts, so take them with some skepticism.
AI also thinks that the failures are down to shocks which reduce passenger capacity, which can't be hedged; possible high interest rates on debt together with the fact that airline margins are small, so potential cashflow problems; and lack of tangible collateral - though in Easyjet's case, they do own about half their fleet. AI also suggests that they already optimise here, by using sale and leasebacks to raise cash when needed.
So, your comment made me initially think 90% success rate was a great driver. But when I looked into the success rate in commercial airlines, the original question seems to come back...
Except now it's 50% chance you'll do great, 50% chance you'll lose most the loan. Or maybe 40/60.
Seems pretty high risk compared to other investments, so I guess those owned planes become collateral, and Easyjet loses the lease and buyback mechanism, and the interest rate will be high.
No_Concept4683 | 16 days ago
It’s definitely true that Airlines are some of the trickiest PE investments. Quite prone to external shocks (e.g. 9/11, GFC, COVID), extremely capital intensive, slim margins and highly regulated. If you only had one shot at making money, you probably wouldn’t do an airline deal, but it works within a fund with some diversification (Apollo usually has c.15-20 deals in a fund). You’d be willing to take a punt if you see a path to 4-5x your money (rather than the 2.5x PE usually shoots for), even if the downside risk is a total capital loss.
slimkay | 16 days ago
Barclays is the only named bank for now but the package will no doubt be syndicated to others.
We will probably know more about it in the coming days.
wellthatexplainsalot | 16 days ago
Thank you. I did mean it more as a rhetorical question to highlight the utter idiocy of the lending - short term profit against loss of the airline, even if the collateral is some jets.
But I do have some Barclays accounts. Maybe I should not be trusting a bank that backs this.
slimkay | 16 days ago
Don’t worry. There’s assuredly stuff much nastier than this potential loan to EZJ on Barclays’ balance sheet.
GeorgeSThompson | 15 days ago
"Who are the lenders who are prepared to lend, knowing the inevitable outcome" -> thats exactly the question you need to ask. So many people here are acting like PE is a free money glitch. Essentially the loans will be leveraged against the assets or stock price of easy jet, as such they have a high confidence of return.
The main reason these deals happen is an investor feels that a company is underpriced relative to its assets. They then borrow money to buy the company and try extract more value than the loans required. Its not without risk however as should they fail then PE may noy be able to recover their initial sizable investment.
HandyRoyd | 16 days ago
This needs stopped and rules put in place for the future. It's shocking that the authorities thing it's reasonable and legit for a group to "buy" a company by .. making the company itself pay for the purchase by plunging itself into crippling debt that may well ruin the company.
Anyone not familiar with how this plays out - read up on ASDAs difficulties.
Rare_Touch8636 | 16 days ago
How is a struggling retail business comparable to a successful airline? Is Asda really the only example of a PE buyout you can name?
SilentMode-On | 16 days ago
Most care homes in the UK are PE backed as well as a lot of our food chains. Most are in the gutter thanks to the debt with very few exceptions.
Rare_Touch8636 | 16 days ago
Wholly irrelevant here
SilentMode-On | 16 days ago
You asked for other examples of failed PE buyouts…
HandyRoyd | 15 days ago
What is the PE buyout going to do for them? Force more customers to love easyjet and pay more to fly? Get cheaper airport slots? Cheaper fuel? Nope nope and nope.
3 billion of debt going to be offset by .. what and in what way?
Other than some vague "expertise" hand waving theory, what will they bring other than huge debt?
Rare_Touch8636 | 15 days ago
Easier access to capital, a proven track record of successful managing airlines and a governance structure with a myopic approach.
HandyRoyd | 15 days ago
It's a successful enough airline. It could just employ one of these "geniuses" on a vast salary. That'll be the "vague "expertise" hand waving theory" then.
Access to capital. Who the hell gets 3 billion in debt, more than half the apparent value of the entire company, to get "easier access to capital"?
It's like taking out a huge bank loan to get a better limit on your credit card.
Rare_Touch8636 | 15 days ago
Its ok if you don't understand PE. Just say...
No_Objective006 | 16 days ago
See Manchester United for more info. Fuck the Glazers.