With all the eye-catching figures about the amount of capital being committed to private equity (PE) by global investors, industry watchers are naturally keen to know what kind of deal size may result. Well, here’s one: US$49.5 billion.
That’s the figure being put against the deal between Airbus and Indigo Partners LLC, the aviation-focused PE firm led by Managing Partner Bill Franke, as announced at the Dubai Airshow last week. The deal involves Mr. Franke’s stable of investee budget airlines, including Hungary’s Wizz Air, where he is chairman.
“Valued at $49.5 billion, this is Airbus’ largest single announcement ever,” says, well, Airbus’s largest single announcement ever, on its website. “Airbus, Indigo Partners’ four portfolio airlines have signed a Memorandum of Understanding for the purchase by the four airlines of 430 additional A320neo Family aircraft. The aircraft will be allocated among the ultra low-cost airlines Frontier Airlines (US), JetSMART (Chile), Volaris (Mexico) and Wizz Air (Hungary) upon the completion of final purchase agreements.”
Generalist PE firms have long attracted scepticism from their target companies and commentators at large for having too little knowledge of the businesses they invest into, relying instead on outside consultants. The cliché runs that any general partner (GP) asked how to increase the value of his investee businesses will simply say “Hire Bain”.
In contrast, Mr. Franke is practically the ideal sector investor. The airline-related roles on his resume span the globe and the entire industry, from chief executive officer of US Airways to director at Ryanair and chairman at Singapore’s Tiger Airways. Said outgoing Airbus sales Chief Operating Officer John Leahy: “An order for 430 aircraft is remarkable, but it’s particularly gratifying to all of us at Airbus when it comes from a group of airline professionals who know our products as well as the folks at Indigo Partners do.”
What I’m still intrigued to know is how exactly Mr. Franke managed to pull together that amount of financing for this deal. I assume we’re talking purchases financed out of his stable of investee companies, rather than reliance on Indigo Partners’ own capital plus bank leverage. Yet, as you can see from the announcement above, the deal is definitely being attributed to Indigo Partners – meaning that a PE player is effectively restructuring an entire industry.
It’s a very salutary contrast to the ignominious collapse of the UK’s Monarch Airlines last month, a debacle which has held its PE owner, Greybull Capital, up to intense scrutiny.
Perhaps sector specialisation really is an option that more PE firms ought to go for. After all, with the volume of limited partner (LP) commitments sloshing around in the market right now, they can afford it.
