Common Facts

This negotiation is between Flyover Airlines ("Buyer") and Puddle Aviation ("Seller"). After weeks of negotiation, the Parties have agreed on all details except those outlined below. Each side has indicated they are perfectly happy to walk away and continue operations as is, but they recognize they are negotiating for a reason: if a deal can be found to satisfy all needs it will be the best outcome.

The Buyer is a small/moderate size airline that services smaller, non-metropolitan cities in Canada. They have been operating since 2002 and are looking to grow in new spaces now that travel restrictions are easing, and some competitors are no longer operating since COVID halted travel.

The Sellers are brothers (Jack and John) that have been flying customers into remote fishing/hunting areas for over 30 years. They have six planes and approximately 500 hectares of land that host 4 private runways. One of these runways is less than 50 kilometers from Ottawa; another is in the heart of Muskoka which is often known as the playground for the rich. These have tremendous standalone value.

The Buyer's approached the Seller's in September 2022 about acquiring Puddle Aviation and passive negotiation has been ongoing since this time. Each team has hired accountants and lawyers to review the business and have empowered their agents (you) to close the deal.

Each side is aware that WestJet recently bought a small airline in Manitoba for $27,500,000. That carrier had nine planes that are much older than Puddle's and the land does not carry the same value. Another deal that is public involves Air Canada buying out a company in British Columbia for nearly $60,000,000 and absorbing eight planes and similar property value.

Your Position - Buyer (Private to you)

The Buyer is anxious to make this deal happen. With the supply chain being disrupted during COVID, they will not be able to purchase planes to service the pent-up demand for travel. Their accountants scoff at the price of $50 million that the Seller is requesting, yet others are concerned that between the lost revenue from waiting for new planes and the price of everything skyrocketing, perhaps it isn't too high.

You team has identified the following value in the Puddle Aviation's assets. 38 million in land/fixtures, 7 million in planes (one plane, the pondfrog, is actually a liability as it is small and you don't have staff licensed to fly this aircraft), and $3 million in other materials such as trucks, parts, and such).

The CFO has authorized a purchase price of $42 million, but you can extend that to $46 million if they accept payment over five years or $48 million if over ten years. Your side recognizes that the Sellers only debt, a bank loan for $4.5 million will be inherited by you, yet encourage you to try to get out of this if the other side does not understand you will absorb it. If they want other perks, they should be given judiciously to avoid this debt.

The plan is to retain the existing staff until you can weed out the week employees and replace with corporate staff. Within two years the plan is to fold Puddle into your fleet with a rebranding to bring a new look to these planes that service remote locations.

Absent a deal, your company will have to either buy new planes and compete with Puddle and others, or look to negotiate with a few independent operators which could take years to close if at all. Otherwise, not servicing these lucrative locations is an option, but the loss of revenue will be missed.

You are tasked with reaching a deal with the Seller's agents. With full autonomy to negotiate, make it happen.

Question:

what creative ways might you suggest to grow the pie before we divide it?