Winnipeg Free Press - PRINT EDITION

Exchange Income lands U.S. deal

Buys aircraft-parts firm for $80M

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EXCHANGE Income Corporation, the Winnipeg company that owns regional airlines and a handful of manufacturing companies around North America, has paid $80 million for a Florida company that sells used aircraft parts and whole planes, including hard-to-find models.

It was the largest deal in the company's eight-year history.

Exchange Income's CEO Mike Pyle said the acquisition of Regional One Inc. will immediately add to the company's bottom line and will likely create further value by virtue of Exchange Income's existing business in the aviation sector.

Exchange owns Calm Air International, Perimeter Aviation, Bearskin Lake Air Service, Keewatin Air and Custom Helicopter.

Regional One buys planes at or near the end of their operating life and will either get them overhauled and lease them out until they've hit the end of their flying life or tear them down and sell the parts.

The company specializes in some ATR and Dash-8 models, many of which are no longer in production. Exchange Income's airlines fly those planes and have used Regional One's services in the past.

Those planes are typically used by smaller regional carriers -- such as the Manitoba airlines Exchange owns -- who are unable to keep large parts inventories on hand and are willing to pay premium prices for parts to which they need immediate access.

"It gives us a leg up, giving us access to the right equipment," Pyle said. "For instance, we were looking for a Dash-8 to buy last year, and it took us eight months to find one. Regional One knows that market. It gives us depth and a hedge on parts."

Regional One generated $31.6 million in revenue in 2011 and has a track record of about 25 per cent annual growth for the past five years.

The deal is also expected to potentially feed business into the Winnipeg company's new $10-million aircraft maintenance facility scheduled to open in about a month.

The 60,000-square-foot facility is located next to the current location of the Western Canada Aviation Museum. Pyle said it will likely take a few quarters to get things sorted out, but he said Regional One planes that might still have some flying time left and could be leased, could also be overhauled at the Winnipeg centre.

Exchange Income released its year-end results just hours before closing the Regional One deal. The company posted record results, with revenue of $800.6 million, up 57 per cent, largely because of the contributions of WesTower Communications, a manufacturer, constructor and service provider of cellphone towers. Company-wide, EBITDA (earnings before interest, taxes, depreciation, and amortization) was up 26 per cent to $94.5 million and profits were up 22 per cent to $25.3 million.

About 25 per cent of the Region One purchase price will be paid in new shares to be issued, and the rest will come through the company's existing debt facility.

The results and the latest acquisition caused a couple of analysts to increase their target price on Exchange Income shares -- one increased the target up $2 to $33 and another up $1 to $29.50.

The shares closed up 25 cents on Thursday to $28.56.

Trevor Johnson, an analyst with National Bank Financial -- who previously had the highest target price of $32 -- said it is another unique transaction for a company that has done a good job absorbing acquisitions.

He said it looks like this one fits the company's previous track record of never paying too much for the companies it buys and targeting ones that are not too high profile.

"They do the heavy lifting and make sure deals are in their sweet spot," Johnson said. "This is another company that is under the radar and complimentary."

Republished from the Winnipeg Free Press print edition March 1, 2013 B5

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