Work Sample Introduction

Tomás Beecham, Associate Director, EMEA Consumer Products & Retail

Coverage
Work Sample Briefing

The Task
British Airways has identified an opportunity for growth and wants to get into the low-cost carrier market in
Eastern Europe. They are looking at either building it themselves or acquiring a competitor.
As an Investment Banking Analyst, you will need to create a recommendation based on the analysis of two
potential companies they could acquire.
Work Sample Briefing

Instructions:
1. Research the low-cost carrier market in Eastern Europe and the key competitors operating in this market.
2. Use relevant valuation methodologies to compare two potential companies that British Airways could acquire.
3. Using your research and analysis, create a recommendation for British Airways in PowerPoint format. Ensure
you highlight ESG within this.
Work Sample Briefing

Core Deliverables:

1. A one-page deal summary including:

• Key statistics on the size of the low-cost carrier market in Eastern Europe
• 3 competitors in the low-cost carrier market in Eastern Europe and some core financial metrics
• Top-level business model overview for the largest competitor in the market (i.e. how do they generate revenue)
• The 5 key strategic rationales for the decision to enter the low-cost carrier market in Eastern Europe
2. A one-page comparables summary including:
• Key transaction comparables
• Key trading comparables
• Two key target acquisitions and their estimated market value
3. Outline the key next steps, including:
• The next steps for British Airways and the target of the acquisition candidates
Work Sample Briefing
Tips:
1. Take your time to research the market; understand how British Airways operates, the aviation market, and the
low-cost carrier market.
2. Remember International Airlines Group (parent company of British Airways) is a publicly traded company
and so will have plenty of resources for you to review!
3. Present your analysis and findings in a clear and easy to understand way. Remember this will inform British
Airways on the next steps to take!
4. Don’t forget to include a title slide, contents page, three key deliverables and closing slide.
5. Don’t forget to use the knowledge you gained from our sector speakers this morning and yesterday!

Key attributes that make ESG in investment Business valuations

Sector 101 Asset Management M&A Case Study
a good investor banking methodologies
Top Tips for the Work Sample
1. Open the work sample brief – it’s pinned to the top of the STREAM-SPECIFIC CHAT

2. You have the rest of the day and tomorrow morning to work on the task

3. If you have questions – ask your BN peers or research online! You’re not expected to know everything

4. Create your work sample in a document that allows you to share it via a link (Wetransfer, Google Drive or
Dropbox)

5. Approach the task as if it were set by a manager in a real work environment

6. Focus on doing the task today - do not worry about submitting the work sample today

7. Do your best – we don’t grade your work which means you CANNOT fail the work sample!

Good luck with the work sample and we’ll see you back on the Main Stage at 9:00am tomorrow!
Work Sample Debrief
Tomás Beecham, Associate Director, EMEA Consumer Products & Retail
Coverage
British Airways Expansion Opportunity Analysis

The Situation:
British Airways has identified for growth and expansion into the low-cost carrier market in Eastern
Europe. This can either be through organic expansion or through acquisition.

The Task:
Create a recommendation based on the analysis of two potential companies that could be acquired and
give explanation to the deal lifecycle.

Core Objectives: 1 Market Summary 2 Comparables Summary 3 Next steps

Market Summary
 Market Summary:
Eastern European low-cost carriers
British Airway’s entry into the low-cost carrier market in Eastern Europe would allow them to capitalise on a rapidly growing destination of choice with Eastern Europe outpacing
Western Europe on all growth metrics. Low-cost carriers are continuing to acquire British Airway’s existing market share and so this is an opportunity to engage a new segment of
customer - being the low-cost, digital natives in Europe.

The Market: Key market competition:

• Eastern Europe’s fleet capacity has more than doubled in the past decade, with compound annual
growth rate (CAGR) at 6.6% compared to 3% in Western Europe [1] Low-Cost Location 2019 Revenue 2019 EBITDA 2019
• Eastern Europe now accounts for 13.6% of Europe’s aviation capacity. [1] Carrier Base (m) (m) Passengers (m)
• Poland has seen a 460% increase seat capacity in the prior decade
• Romania has seen a 300% increase in seat capacity in the prior decade Budapest,
Wizz Air [6] £2,473 £701 40
• For comparison, France has seen a 54% increase Hungary
• Market is largely dominated by three core players; Ryanair, EasyJet, and WizzAir. Ryanair
transported 152.4m [2] passengers in 2019. Total European travel was at 682m passengers [3].
• Low cost carrier European market share now at 33%, up from 21.4% in 2010 [4]. airBaltic [7] Riga, Latvia £450 £112 5
• Passengers to European airports are currently down 88% YoY due to COVID-19 [5].
LOT Polish
Warsaw, Poland €1,640 €32 10
Airlines [8]

Wizz Air Business Model [6]: Strategic Rationale:

Fly to underserved,
growing economies and
target digital-natives and ”bolt-ons” (i.e. baggage,
students
Revenue from low-cost
air travel (60%) and
priority boarding, etc)
Ultra-low cost operating
model serves as an
advantage against
fluctuating fuel prices
• Eastern European aviation market is growing at twice the rate of Western Europe
• Low-cost carrier market is growing significantly, quickly becoming a go-to option for inter-
Europe travellers
• Impact of COVID-19 on European aviation presents an opportunity to acquire struggling
airlines with significant customer bases
• Engage new target audience of low-cost travellers to BA brand
• Economies of scale, using existing airport hubs and relationships will make market entry
more simple
Comparables
Comparables:
LOT Polish Airlines and airBaltic valuations
Analysis of previous transactions in Aviation and consideration for current trading of similar companies suggest a valuation range of c.7-11x EV/EBITDA.
With LOT Polish Airlines and airBaltic’s pre-COVID-19 LTM EBITDA (£28m, £112m respectively) we can assume a valuation of;
LOT Polish Airlines: £200-300m | airBaltic: £800-1,200m

Trading Comparables Median: 6.2x Transaction Comparables Median: 11.1x

8.9x
11.4x 11.7x
7.8x 11.1x 10.9x

6.2x
5.7x

3.2x 4.9x

Series1 Series1
Company Ryanair Wizz Air EasyJet SAS Finnair Date Sep-19 Apr-18 Apr-16 Oct-07 Jun-05

EV (£m) £13,275 £2,029 £2,883 £1,528 £667 Target LATAM Airlines Azul Virgin America GB Airways Swiss Int’l Air
CY22E Acquirer Delta United Airlines Alaska Airlines easyJet Lufthansa
EBITDA £1,489 £259 £906 £248 £118 EV (£m) £1,572 £100 £1.607 £131 £398
(£m) EBITDA
EV/ £142 £9 £137 £12 £81
(£m)
CY22E 8.9x 7.8x 3.2x 6.2x 5.7x EV/LTM
11.1x 11.4x 11.7x 10.9x 4.9x
EBITDA EBITDA
Median 6.2x 6.2x 6.2x 6.2x 6.2x Median 11.1x 11.1x 11.1x 11.1x 11.1x
Next Steps
 Deal Lifecycle:
LOT Acquisition
Having completed a top level analysis of potential acquisition targets for British Airways for the purpose of entering the low-cost carrier market in Eastern Europe, LOT has been identified as the
most attractive target given it’s Revenue : Passenger ratio being significantly higher than AirBaltic.

The next steps are to begin the Strategic Due Diligence process before submitting a formal bid.

Bid Submission
1. Show BA’s intent to acquire LOT
2. Make initial bid based on valuation models
Strategic Due Diligence Full-Scope Due Diligence
1. Understand strategic fit with BA 1. Deep analysis of financial performance
2. Test assumptions/projections & their likelihood 2. Assess contracts, liabilities, and LOT fleet
3. Assess customer base and wider market 3. Understand regulatory considerations

Deal
Acquisition Strategy & Market Evaluation Lifecycle: Final Bid & Negotiation
1. Define core acquisition strategy and rationale airBaltic 1. Submit final bid with due diligence findings
2. Understand market landscape considered
3. Identify key acquisition target
Acquisition 2. Review Share Purchase Agreement

Pre-Acquisition Structuring
1. Consider how to structure and finance the
acquisition
Complete Purchase & Integration
1. Create detailed integration plan of LOT into BA
2. Re-structure to obtain optimum Business Model
References

1. Routes Online: https://www.routesonline.com/news/29/breaking-news/283758/eastern-europe-the-land-of-promise/

2. Statista:
https://www.statista.com/statistics/1094759/largest-airlines-in-europe-based-on-passengers/#:~:text=In%202019%2C%20Ryanair%20was%20
the,third%2C%20with%20118.3%20million%20passengers.
3. Eurostat: https://ec.europa.eu/eurostat/documents/2995521/10265946/7-06122019-AP-EN.PDF/8f2c9d16-c1c4-0e1f-7a66-47ce411faef7
4. Statista: https://www.statista.com/statistics/1117218/low-cost-carrier-market-share-europe/
5. Statista: https://www.statista.com/statistics/1107029/coronavirus-impact-airport-passenger-traffic-europe/
6. WizzAir Annual Report:
https://wizzair.com/static/docs/default-source/downloadable-documents/corporate-website-transfer-documents/annual-reports/ar-f19-final-(we
b-indexed)_6afd66af.pdf
7. Aviation24: https://www.aviation24.be/airlines/airbaltic/airbaltic-reports-record-e503-million-revenue-in-2019-23/
8. Aviation24:
https://www.aviation24.be/airlines/lot-polish-airlines/lot-with-profit-and-a-record-number-of-passengers-in-2019/#:~:text=In%202019%2C%2
0LOT's%20revenues%20from,and%20launched%2015%20new%20connections