After a string of denied offers, it appeared that easyJet (U2/EZY) was edging closer to a takeover by Castlelake. But the story has since taken another turn, with Apollo Global Management also entering the race to acquire the British low-cost carrier. Why are US investment firms interested in easyJet? And how could a deal change the future for European air travelers? Flightradar24 takes a closer look.
All eyes on easyJet
Even if you’ve never flown on one yourself, chances are you’ve spotted one of easyJet’s A320’s at a European airport. Not only because of the less-than-subtle choice of livery color. With more than 300 aircraft in their stable, the European low-cost carrier has been around since the mid-90’s and has since then become a popular choice not only among budget conscious passengers. On any given day, you can track hundreds of their flights here on Flightradar24.
Like many airlines, it’s seen its fair share of ups and downs when it comes to the balance sheet. The dark ages (also known as Covid-19) and Brexit posed challenges. But in general, the airline has rebounded well after the pandemic. Enter Castlelake and Apollo Global Management.
From takeover bid to bidding war
By the end of May this year, it became known that the US private equity firm Castlelake had proposed a takeover bid for easyJet. This was subsequently (and we assume with typical British courtesy) rejected by the board of the low-cost carrier. A brief back and forth ensued. New bid. Rejected. And so on.
Then, in early July, it emerged that easyJet’s board was willing to engage further with Castlelake’s latest proposal, which valued the airline at a premium of more than 70% over its share price before the approach became public. Many viewed the takeover as being a done deal at that point, with perhaps only regulatory approval throwing coins into the engine to disrupt the takeover. Mere days later, another heavyweight investor entered the picture. Yesterday, Apollo Global Management also expressed interest in acquiring easyJet, potentially setting the stage for a bidding contest between two major US investment firms.
Now what? It is important to note that no deal is done. Both potential buyers would still need to satisfy regulatory requirements, demonstrate that easyJet would continue to meet European ownership rules, and ultimately win the support of shareholders. Whether Castlelake, Apollo, or neither succeeds remains uncertain. But the situation raises an obvious question—why are two major investment firms so interested in the orange-tailed airline? Let’s start by taking a closer look at the potential investees.
Who is Castlelake?
Just like you may have flown on board an easyJet aircraft, it isn’t entirely out of the question that you’ve flown on one owned by Castlelake. The key word here being ”owned”. Castlelake is an investment firm, specializing in areas including aviation assets, credit, and alternative investments. In layman’s terms, one of their business ventures is to lease aircraft to airlines. They also already are a key shareholder in SAS (SK/SAS), acquiring about a third of the Scandinavian carrier when it was on the brink of bankruptcy a few years ago. But in the case of SAS, they have not taken an active management role..
With the above in mind, Castlelake hardly is entering the world of aviation with rose-tinted glasses and naivety. The company has been involved in aircraft leasing and aviation investments for years, giving it experience with one of the most complicated industries in the world. Which probably is why easyJet is of interest.
And who is Apollo Global Management?
If Castlelake is no stranger to aviation, neither is Apollo Global Management. It too has invested in aircraft leasing, airport infrastructure, and aviation-related businesses over the years. Rather than operating airlines itself, the company has typically focused on financing and owning assets that keep the industry moving. That means it is well acquainted with the economics of commercial aviation, including opportunities that can arise when airlines become undervalued.
In other words, this takeover battle between Castlelake and Apollo is not the case of an aviation specialist taking on an outsider. Instead, it would see Castlelake facing one of the world’s largest investment firms. While Apollo manages significantly more capital, both companies are well acquainted with the business of aviation and have the financial muscle to pursue a deal of this size.
Why easyJet?
At first glance, buying an airline might seem like a slightly strange move. After all, aviation is not exactly famous for being an easy way to make money. Margins are often razor thin, and unpredictability is always looming. Wars break out, financial markets crash, volcanoes go boom. Seemingly, there is always something waiting around the corner to disrupt the carefully planned operation. But from an investor’s perspective, one of the most attractive parts of any airline is something passengers rarely think about—airport slots.
A slot gives an airline the right to operate a departure or arrival at a specific time. At airports where capacity is limited, these rights are incredibly difficult to obtain. A new airline can buy aircraft and hire crews, but securing attractive slots at airports like London Gatwick (LGW) or Amsterdam Schiphol (AMS) can range from hard to borderline impossible. You guessed it, easyJet sits on a bonafide goldmine in the shape of slots like these. But there’s more to it.
When yours truly grew up, flying was expensive and the market heavily regulated. Flag carriers were the norm and just booking a cheap getaway on a whim out of the question for the vast majority of Europeans. Along with airlines like Ryanair (FR/RYR) and Norwegian (DY/NOZ), easyJet has been one of the companies driving (and benefitting from) the transformation of European air travel. Traditionally positioning itself somewhere between a traditional airline and a pure budget carrier, it offers a large network, operates from major airports, and appeals to both leisure and business travelers.
Again, probably sweet music to the ears of both Castlelake and Apollo Global Management.
What happens now?
Regulatory approval and shareholder ”yay-or-nay” aside, the most immediate question now naturally is who ends up owning easyJet. At the time of writing, Apollo Global Management is in pole position. But Castlelake, or even yet another party, may announce a higher offer and trigger a formal bidding war. If a deal is ultimately agreed, the future of an easyJet under private equity ownership could take several different directions.
The most pessimistic of pessimists would whisper that the carrier gets broken up in parts and sold, the mentioned slots alone reportedly being valued at more than what at least Castlelakes currently has bid for the company. Castlelake has remained coy on its plans, with on the other hand reportedly supporting the current strategy of easyJet. This further implies that it wouldn’t break up the company and sell it for parts.
Given that we after all are discussing private equity companies, a plausible scenario sees the new owner streamlining and carefully examining the operator for opportunities where cost-cutting measures can be implemented. Perhaps it even seeks to further increase competition with Ryanair, currently weighing in at roughly twice the size when it comes to strict fleet numbers?
The next chapter for easyJet
Airlines are notoriously difficult businesses, and even experienced investors have learned that aviation rarely follows a predictable flight path. But whichever investor ultimately prevails, the acquisition would mark an interesting moment for European aviation.
As we’ve already mentioned, both Castlelake and Apollo Global Management understand the aviation sector. Castlelake has built experience through its aircraft investments and involvement with SAS, while Apollo has invested in aviation-related assets as part of its broader transportation and infrastructure portfolio. Either firm would bring significant financial resources, but running one of Europe’s largest airlines presents a very different challenge from owning aircraft or investing in aviation assets.
Whether either bidder ultimately succeeds—and whether private equity ownership proves to be a winning formula for easyJet—remains to be seen.
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