Private equity is circling budget airlines after Apollo's EasyJet deal — and this carrier could be next

Following Apollo Global Management's acquisition of budget airline EasyJet, private equity firms are becoming increasingly interested in other European airlines, with Jet2 potentially becoming the next target. Anna Macdonald, investment strategy director at Hargreaves Lansdown, points out that airlines have suffered significantly in the early stages of the Iran conflict.

However, recent share price movements suggest that investors are now anticipating more deals in the industry. Jet2's shares have risen by 60% since trading at a price-to-equity ratio of 6-7 times. With U.K. equity valuations lagging behind global counterparts, Macdonald believes the London market poses an attractive opportunity for private equity investors.

While private buyouts of international flag carriers may present more challenges, the upside potential in the budget airline sector appears more promising. The EasyJet deal, expected to value the low-cost carrier at $7.7 billion, occurred after rival Castlelake withdrew its $7.3 billion bid for the London-listed airline. Macdonald emphasizes that the airline sector is facing multiple challenges, including low margins, cyclical demand, and high regulation.

She adds that private ownership may enable airlines to explore alternative financing options, potentially benefiting consumers with lower costs.