1 / 18

Imperial Air Group February 28, 2002

Imperial Air Group February 28, 2002. Frank Burke Jared Lawrence Gurkan Salk David Watson Travis Young. Agenda. Case Introduction Recommendation Valuation Options Conclusion – Case Update. Case Synopsis. Lufthansa is considering an investment in Chinese airline. Learning Objectives.

ranger
Télécharger la présentation

Imperial Air Group February 28, 2002

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Imperial Air GroupFebruary 28, 2002 Frank Burke Jared Lawrence Gurkan Salk David Watson Travis Young

  2. Agenda • Case Introduction • Recommendation • Valuation • Options • Conclusion – Case Update

  3. Case Synopsis • Lufthansa is considering an investment in Chinese airline

  4. Learning Objectives • Cost of capital considerations • Comprehensive DCF Modeling (debt restructuring, optional cash flows) • Strategic Bidding • Identification of Option Value

  5. Why the deal is happening • China Aviation Industry Consolidation • CAAC effort to revitalize industry • WTO Acceptance • Will boost Chinese aviation market • Need to be more cost effective • Increased competition

  6. Imperial Air Group • Flagship Chinese international carrier • Industry consolidation expands domestic presence • Strategic partner would increase operational efficiencies

  7. Lufthansa AG • German national carrier • Europe’s most profitable airline in 2000 • History of investing in China • Existing relationship with Imperial Air • Looking to diversify international revenues – 63% in Europe

  8. The Deal • 20% stake in Imperial Air • Debt restructuring • IPO in 2 years • Conditional on performance targets • Additional equity offering of 15% • Multiple strategic bidders

  9. Bid Recommendation • Bid $483 million • Competitive bid, w/ NPV = $73MM • Lufthansa is best strategic fit • Comps analysis not meaningful

  10. DCF Model • Comprehensive 10 year projections • Main Issues • Revenue Projections • Alliance/Consolidation Benefits • Fuel Costs • Debt Paydown • IPO

  11. DCF Model Projecting Airline Revenues • Passenger Revenue = RPM * Yield • RPM highly correlated with GDP growth • Yield subject to typical competitive forces (supply & demand, price wars, business cycles)

  12. Risk Assessment

  13. Cost of Capital • Assumptions: • Risk free rate: 5.5% • Market risk premium: 4% • ICCRC Cost of Capital ICCRC Rate 17.8% Currency Risk (1.3%) Adjusted CoC 16.5%

  14. DCF NPV Results E[NPV] = 607.5MM Rmb, S.D. = 997MM, P[NPV>0] = 72%

  15. Multiples Analysis • Acquisition Multiples • Not meaningful, due to regional and other differences • Trading Multiples • P/E: Regional differences, Imperial negative earnings • EBITDAR: Best multiple for industry, but also problematic due to high leverage

  16. Option Value to Lufthansa • Financial • Anti-Dilution option to purchase additional shares at 25% discount in the event that Imperial Air Group conducts an IPO • Value = $6.2 million • Real • Option to invite Imperial Air Group into the Star Alliance • Expansion of cargo service in China

  17. Conclusion – Case Update • WTO agreements did not liberalize Chinese air markets • CAAC has opposed debt-to-equity conversions • Some consolidations are in jeopardy • “Imperial Air” (larger) and CNAC (financially stronger) are in dispute over who should lead the consolidated “Imperial Air Group” • Smaller independent airlines have formed an alliance to compete with the majors

  18. Learning Objectives • Cost of capital considerations • Comprehensive DCF Modeling (debt restructuring, optional cash flows) • Strategic Bidding • Identification of Option Value

More Related