Buffett in the aviation industry is long-term


It took Bill Franke 20 years to refute Warren Buffett’s adage that airlines are a “death trap for investors.”

But as a novice private equity executive who touted his first fund in 2002, he worked hard to persuade large investors and pension funds to invest their money in a well-known cyclical and unpredictable industry. “They all seemed to be’not in the aviation industry’,” Frank recalled in an interview with the Financial Times.

Twenty years later, the 84-year-old Frank is considered by some to be the most successful airline investor in history. He bought shares in a number of small airlines and promoted them by installing pioneering ultra-low-cost business models. Rapid growth. Southwest Airlines and Ryanair in Europe.

Although passengers are often annoyed by the concise model, which includes stacking seats into the plane and charging surcharges, it is expected that this part of the industry will be strengthened by the pandemic, further cementing Franke’s reputation as a Buffett in the aviation industry.

Franke’s Indigo Partners owns shares in six airlines, including Frontier in the United States, Volaris in Chile and Enerjet in Canada. But it was Wizz Air, a Hungarian airline that Indigo owns 40% and is chaired by Franke, that drew the imagination of a devastated industry.

Wizz hopes to use this crisis to achieve rapid growth, and its ambition is Bold bid for easyJet It was revealed and rejected last week.

Franke will not discuss easyJet, but said that Indigo is “actively considering opportunities” because the aviation industry is recovering from the chaos caused by Covid.

“It’s time for the industry to consider integration, and we obviously want to be an integrator [buyer],” He said.

If Wizz CEO József Váradi can more than double the stock price, he will receive a huge bonus © Akos Stiller/Bloomberg

If Wizz CEO József Váradi can more than double the share price in the next five years, he will also receive a compelling £100 million bonus.

“This is a typical Bill,” said John Leahy, the former sales director of the aircraft manufacturer Airbus, who has first-hand experience in negotiations with Franke, who is a passenger aircraft seller for his airline. “unless [Váradi] Delivery, if he doubles the stock price, then Bill is willing to share,” he said.

However, surprisingly, given his success, Frank never intended to engage in the aviation industry.

It was not until the early 1990s, when he was in his 50s, that he became interested in airlines for the first time under the contact of the Governor of Arizona. Following the businessman’s successful but low-key career, the politician reversed the situation in the paper industry and retail industry and asked him to help rescue the bankrupt American West Airline.

“I don’t know Airbus or Boeing or any part of the business from top to bottom… I have to go on the fast lane to get an education, sometimes a difficult road,” Frank said.

With the help of private equity billionaire businessman David Bonderman (David Bonderman), the novice airline boss once again demonstrated his golden finger in restructuring, in the next ten years, the United States The West has become a successful low-cost operator.

He then left the airline, followed his friend Bondman into the private equity field, and founded Indigo Partners in 2002.

With the early support of the Singapore Sovereign Wealth Fund (which is still an investor today), the fund’s investment scope spans all continents, but it is always guided by a consistent approach to seeking assets with lower costs, which is very useful during Frank’s turnaround. .

“In almost all cases, management allows the balance sheet to be in trouble like a trolley,” he said of the company he restructured, something he will never forget when looking for investment for a new private equity fund .

Between 2005 and 2016, Ben Baldanza, the chief executive of Spirit Airlines, backed by Indigo, stated: “The focus on cost is very good, and it’s relentless. This is something that airlines can really control. thing.”

However, there were also mistakes. The Spirit, which Franke sold out in 2013, was plagued by complaints from customers about the concise model, and the investment in Russia also failed.

And it is difficult to determine how Indigo and Franke himself performed in his private equity group, because it disclosed almost no financial information.

Franke only said that Indigo’s rate of return in the past 20 years “will definitely be in the top 10% of the industry.” He also declined to disclose his investors, although it is understood that they include a European bank and high-net-worth individuals.

However, the group has clearly made money from Wizz, which is an out-and-out success in terms of share price, which has soared from £11.50 when the airline was listed in London in 2015 to nearly £50. During this period, Indigo slowly reduced its stake in the airline, including this year’s 400 million pounds of stock sale.

Leahy sat across the table with Franke while negotiating one of the largest aircraft orders in history, and he was certainly impressed.

“He is a very tough negotiator, but he is not one of those people knocking on the table and gesticulating in the media. We found a compromise, I want to say in the middle, but maybe more inclined to his direction,” Lai Hee said, referring to Frank’s 430 aircraft on order In 2017, he represented his four airlines for a total sale of 49.5 billion US dollars.

“I would say that his batting rate is very good, not too many disasters and very many successes. He made a lot of money.”

Leahy added that he also has a tendency to do whatever he wants. “If you are one of Bill’s airlines, I don’t think you will be stubbornly independent for a long time. You have followed Bill’s instructions.”

Baldanza agreed that Franke would maintain strict control of his airline and compete with his CEO.

“I used to joke with Joe [Váradi, Wizz Air boss] Bill always tells Joe:’You are far behind, you have to do what the spirit is doing,’ he always tells me:’You are far behind, you have to do what Wizz is doing,'” Baldanza said .

Ryanair’s outspoken boss Michael O’Leary was also impressed, and he is also a tough airline deal negotiator. “Very smart and very rich,” he said of Frank, who also has staying power and shows no signs of slowing down.

“It’s an interesting and difficult business, but it’s part of keeping me sane,” Frank said, apparently focused on continuing to make a mark on the business that he has helped develop during his decades of investor career. Turnover expert.


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