Private equity is circling budget airlines after Apollo's EasyJet deal — and this carrier could be next
More European airlines could be the crosshairs of private equity buyers following Apollo Global Management‘s swoop for EasyJet — with rival U.K. budget carrier Jet2 emerging as a potential takeover target.
Anna Macdonald, investment strategy director at Hargreaves Lansdown, said airlines had been hit hard in the early stages of the Iran war. But recent share price action suggests investors now anticipate further deals ahead.
Macdonald flagged Jet2 as a potential target for private equity interest, highlighting its “similar dynamics” to EasyJet as a low-cost carrier.
Jet2.
“Jet2, for example, was trading on a price-to-equity ratio of 6-7 times. It’s now gone up about 60% since that low,” Macdonald told CNBC’s “Squawk Box Europe” Friday. “We might see private equity start to look at that.”
Jet2’s shares rose 0.5% in afternoon trade Friday.
Macdonald noted that U.K. equity valuations have not kept pace with global peers, making the London market “fertile hunting ground” for investors, including private equity buyers. But she said private buyouts of international flag carriers are a trickier call than the budget airline space, adding that the upside potential is less obvious.
A Jet2 spokesperson told CNBC: “We do not comment on market rumour or speculation”.
Apollo is expected to take EasyJet private in a deal which values the low-cost carrier at around $7.7 billion. On Thursday, private equity rival Castlelake announced it was withdrawing its $7.3 billion bid for the London-listed airline, clearing the path for Apollo.
EasyJet’s London-listed shares were down 0.48% in afternoon trade Friday, having closed the previous session 2.8% higher.
Macdonald said the deal lands as the airline sector grapples with multiple pressure points. “It is a tough industry, it’s fairly low margin, it’s very cyclical… and also highly-regulated,” she noted. “Costs can vary a lot, and also demand can vary a lot.”
She added: “In a privately-held environment, they may start to think differently about financing to make it less capital intensive, and perhaps that can then feed through to giving consumers better prices.”
