Sky Airlines: Paulmann’s secretive plan to buy airlines

The story goes that, once, a Sky Airlines technician called him “Jorge Palma”. Far from becoming a problem Holger Paulmann laughed.. Until today, history is remembered within the airline, which – like all companies in the sector worldwide – has suffered the effects of the pandemic. Temporary pay cuts and the dismissal of dozens of employees have been part of the measures that the firm took to adjust to the new reality. Today, slowly, the firm begins to take off.

Despite everything complex in recent months, Paulmann maintains his aspiration to transform Sky into a leading airline in the region.

Those who know him and have worked with the businessman define him as a very humble and analytical person. A senior manager of a bank had him a counterpart a few weeks ago. They were negotiating financing options. He says that, until that meeting, all the managers he had met with, literally, were sweating. Paulmann, he says, took everything calmly, calmly, and discussed options. Cold, calculating. Some speak of the so-called German efficiency.

Not even the crisis that world aviation is experiencing managed to dislodge it. On the contrary: along with the – still slow – take-off of the industry, the businessman is outlining a plan for the company to emerge stronger after the pandemic, which could require hiring more workers. But everything will depend on the evolution of the health crisis. So far, there is trust.

Thus, unlike its archrival Latam Airlines, which filed for Chapter 11 of the United States Bankruptcy Law and which will considerably reduce its size, Sky is showing: Holger Paulmann and his closest associates are analyzing possible acquisitions of medium and small airlines in the region, several of which are mired in a complex scenario (so they are cheap) product of Covid. The idea would be to seize an opportunity that would never occur in normal times.

“We evaluate all possible options and if there is a good opportunity we will try to take it,” says a senior source from the company, who asks for a reservation.

Candidate companies to buy? Everything is kept under absolute reserve. Making the interest in a certain company transparent would immediately raise the bonds.

Inside Sky, the reading is clear: the industry is going to recover in the medium term and, today, as a result of the pandemic, the assets within the industry are all very cheap and, in one or two more years, they will be revalue. It is the opportunity that you want to take advantage of.

Financing

At the end of last May, the Latam Airlines administration decided to file for Chapter 11 and thus avoid bankruptcy. They were the most complex moments in the industry. Almost all of the planes in the world were grounded before the massive quarantines and the closing of the skies of the countries.

Sky was no stranger to all of this. He even analyzed the option of resorting to the United States Bankruptcy Law. Inside the company they say that, at that moment, all the options had to be studied; no alternative could be ruled out in order to make the company viable. Today, Chapter 11 is not on the table.

How did the company get past the downpour, or rather the tornado? The administration led by Holger Paulmann took a series of measures such as availing itself of the Employment Protection Law, reaching an agreement for a temporary reduction in the wages of its workers and firing dozens of them, mainly cabin crew. He also decided to send all his administrative employees to work from home; offices were closed. In addition, the low cost airline model allowed to keep expenses to a minimum: the company operates a single aircraft model, which substantially reduces operating costs or, in this case, with the aircraft on the ground, from maintenance.

However, the company still turned to the financial market. The option that was defined was the placement of a bond for more than US $ 100 million, resources that will be used -in part- to make up for the drop in income and -in another- to finance an eventual purchase of a rival company in America Latin.

The bond will be for a term of five years with a bullet format, that is, the issuer -in this case Sky- will return the capital in its entirety at the maturity of this instrument.

The original plan was to issue this instrument before the end of this year, but now there is the option for it to be during the first quarter of 2021.

The plan considers the company’s stock market debut, which could occur between 2023 and 2025, when bondholders could have the option to convert their papers into shares.

The company’s management has not yet defined the percentage that will be made available to the market. What is clear is that it will seek to raise between US $ 100 million and US $ 300 million.

For the same 2023, the airline expects the arrival of the first planes Airbus A321XLR, which can travel almost nine thousand kilometers nonstop. 10 units were ordered, which have a list price of US $ 140 million each.

With these planes, Sky will begin to offer direct flights between Santiago de Chile and Miami, in the US. It could also be Fort Lauderdale, in the same state of Florida.

But the company has already advanced its arrival in the United States: starting next year it will offer Santiago-Miami flights via Lima in its Airbus A320 NEO aircraft, of which it has a fleet of 17 units. The permits have already been granted by the US authority.

Within the airline there is confidence that this new move will greatly increase competition, which will result in a significant drop in prices.

All thanks to the low cost model implemented by Holger Paulmann, which is based, fundamentally, on a fleet with only one type of aircraft.

No relatives

The businessman took over the company after the death of his father, Jürgen Paulmann (Horst’s brother, president of Cencosud), in September 2014.

Holger is the youngest of the four Paulmann Mast brothers, who shared the leadership of each of the clan’s companies. Eberhard, Mundo Dulce management (which includes brands such as Tip Top cookies and Gelato’s ice cream parlors); Margit heads consumer products distributor Adelco, and Andel is a designer at family-owned consulting and advisory business Adem.

In March of this year, Holger stepped down from the airline’s general management and took over as president. “The time has come to assume a new responsibility as chairman of the board, from where I will be able to further drive the sustainable growth of Sky,” he said when taking his new position.

It was difficult for him to leave the daily management of the company; He entrusted this mission to José Ignacio Dougnac, who has been CEO for nine months.

But Paulmann, say those close to him, is confident. They emphasize that he formed the company as if it were an open limited company, as professional as possible. That included professionalizing the board of directors, which was chosen through a head hunter process.

“There are no relatives working in the company, they are all there for what they deserve,” the businessman has been heard saying, along with highlighting the team he managed to form. But the head is him, so he is a student of the aeronautical industry. Although, those who know him say that one of his most recurrent phrases is: “You have to hire people who know more than I do.”