Tue. Oct 19th, 2021


For twenty years, Bill Franke refuted Warren Buffett’s saying that airlines are a ‘death trap for investors’.

But as a novice private equity manager who used his first fund in 2002, he struggled to persuade large investors and pension funds to pour money into a notoriously cyclical and unpredictable industry. “They were all like ‘not in the airline,'” Franke recalled in an interview with the Financial Times.

Two decades later, the 84-year-old Frank is considered by some to be the most successful aviation investor in history after buying shares in a small airline clutch and growing them rapidly by launching the ultra-low-cost business model by Southwest Airlines in the US and Ryanair in Europe.

While passengers often look to the no-frills model, which allows seats in planes to load and load add-ons, this part of the industry is expected to be amplified by the pandemic, which further strengthens Franke’s reputation as Buffett of the airline.

Franke’s Indigo Partners owns shares in six airlines, including Frontier in the US, Volaris in Chile and Canada’s Enerjet. But it is the Hungarian airline Wizz Air, which is 40% owned by Indigo and chaired by Franke, that has captured the imagination of a battered industry.

Wizz hopes to use the crisis for tremendous growth, and its ambitions were underlined when a bold bid on easyJet was unveiled and rejected last week.

Franke would not discuss easyJet, but said Indigo is actively considering opportunities while the aviation industry emerges from the chaos unleashed by Covid.

‘This is a time when the industry is looking at consolidation, and we clearly want to be a consolidator [buyer], “he said.

Wizz CEO József Váradi is offered a big bonus if he more than doubles the share price © Akos Stiller / Bloomberg

Wizz CEO József Váradi has also been offered a striking bonus of £ 100m if he can more than double the share price over the next five years.

“This is a typical Bill,” said John Leahy, former sales chief of aircraft manufacturer Airbus. ‘It will not pay out unless [Váradi] deliver and if he doubles the share price, Bill is willing to share, ”he said.

But surprisingly, given his success, Franke never wanted to end up in the airline.

Only in the early 1990s, when he was in his mid-fifties, did he first become interested in airlines following an approach by the Arizona governor; the politician followed the businessman’s successful but low-profile career and turned around businesses in the paper and retail industry, asking him to help save the bankrupt service provider America West.

‘I did not know from below about Airbus or Boeing or any parts of the business. . . I had to get on a fast track to getting educated, sometimes the hard way, “Franke said.

With the help of capital raised by billionaire private equity businessman David Bonderman, the novice airline boss once again showed his golden touch in restructuring, turning America West into a successful low-cost operator over the next decade.

He then left the airline and followed his friend Bonderman in private equity, founding Indigo Partners in 2002.

With early support from Singapore’s sovereign wealth fund, which is still an investor today, the fund’s investments have fluctuated across continents, but have always been guided by the consistent approach of seeking low-cost assets, which Franke has served well. has in its upheavals.

“In almost every case, management has allowed the balance in a handcart to go to hell,” he said of the companies he restructured, something he never forgot when chasing investments for his new private equity fund. .

“There was a very good, relentless focus on costs,” said Ben Baldanza, CEO of Spirit Airlines, which is backed between 2005 and 2016. “It’s the only thing an airline can really control.”

However, there were mistakes. Spirit, which sold out Franke in 2013, suppressed complaints from customers about the no-frills model, while an investment in Russia failed.

And it’s hard to determine how well Indigo, and Franke himself, has performed at his private equity group, as it discloses virtually no financial information.

Franke would go no further than saying that Indigo would be “certainly in the top 10 percent” of the industry for returns over the past 20 years. He also refuses to disclose his investors, although they allegedly include a European bank and individuals with high net worth.

However, the group clearly made money from Wizz, an unprecedented share price success, rising to almost £ 50 from £ 11.50 in 2015 when the airline listed in London. During the period, Indigo slowly reduced its stake in the carrier, including a sale of £ 400 million this year.

Leahy, who sat across from Franke’s table during the negotiations on one of the largest plane orders in history, was certainly impressed.

‘He’s a very difficult negotiator, but he’s not one of those guys who pushes the tables and points in the press. We found a compromise, I would like to say in the middle, but maybe it was a little more in his direction, ‘Leahy said, referring to Franke order of 430 aircraft on behalf of four of its airlines for a grand prize of $ 49.5 billion in 2017.

‘I would say his batting average is very good, not too many disasters and a lot of success. He made a ton of money. ”

He also tended to get his way, Leahy added. “If you’re one of Bill’s airlines, I do not think you were stubbornly independent for a long time, did you follow Bill’s instructions, or else.”

Baldanza agrees that Franke is holding on tight to his airlines and playing his CEOs against each other.

‘I made a joke with Joe [Váradi, Wizz Air boss] that Bill would always say to Joe, ‘You’re far behind, you have to do what Spirit does,’ and he would always say to me, ‘You’re far behind, you have to do what Wizz does,’ ‘Baldanza said.

Michael O’Leary, the outspoken boss of Ryanair, himself a tough negotiator of airlines, was also impressed. “Very clever and very rich,” he said of Franke, who also has power and shows no signs of slowing down.

“It’s an interesting, difficult business, but it’s part of what keeps me intellectually busy,” Franke said, clearly aiming to make a mark on a business he helped develop during his decades-long career as an investor and turnaround specialist.



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