For Sun Country's IPO, investors make airline worth $2 billion

Stock in Sun Country Airlines Holdings Inc. rose more than 50% on its first day as a publicly traded company, a strong showing of investors' confidence in the company and the emerging recovery of air travel from the pandemic.

The Minnesota-based airline priced its initial public offering at $24, but high demand sent the stock surging when trading began around 11 a.m. It closed at $36.38 with more than 6 million shares traded, about two-thirds of the number issued.

On paper, the day represented a windfall for Sun Country's employees, executives and the investment firm that bought the airline three years ago.

"I'm excited," Jude Bricker, Sun Country's chief executive, said in an interview Wednesday. "I think it's a great day for the Twin Cities. We have a hometown airline listed and that's pretty cool. And we are hiring in the community and we are going to be here for the Twin Cities on the backside of this."

The $218.2 million Sun Country raised in the listing will be used to pay off the $45 million loan it received from the federal government last summer under the CARES Act, executives said. The rest of the proceeds will go to buy new airplanes, hire more workers and grow the airline.

"It doesn't go toward financing losses," Bricker said. "We are making money now and we are cash-flow positive."

Apollo Global Management, a New York investment firm, bought Sun Country in April 2018 for about $188 million and spent more than $200 million on fleet and technology upgrades, according to securities filings. With the listing, Apollo owns majority stake in a company worth $2.03 billion, based on Wednesday's closing share price.

Along with the shares issued to the public, filings showed Sun Country's employees own about 6 million shares or options for shares. The company has about 55 million shares overall.

The airline's story resonated with Wall Street's largest institutional investors. Executives conducted more than 70 virtual meetings with investors on its two-week roadshow. They received more requests for allocation of initial shares than they could satisfy with the offering.

"The reception was awesome. We think we have some really blue-chip shareholders in the stock, so very, very pleased," said Dave Davis, president and chief financial officer at Sun Country.

Davis, an industry veteran, was CFO of Northwest Airlines during its merger with Delta in 2008, which was the last time Minnesota had a publicly traded airline.

Investors broadly have been looking for companies that are perched to fare well as the economy recovers from the pandemic. Air travel is one industry that was hurt badly as people were forced to distance themselves from each other to slow the spread of coronavirus.

Last week, one of Sun Country's competitors, Denver-based Frontier Airlines, said it would also soon stage an IPO.

Sun Country's business model — with its three revenue streams of cargo, commercial and charter service — allowed it to outperform the industry during the pandemic.

Key to its 2020 results was a fortuitous deal penned with Amazon a few months before the virus' arrival in the United States. While airline peers were hemorrhaging cash throughout 2020, Sun Country was able to pick up more contract cargo flying last summer, which prevented it from having to furlough any front-line workers.

"The objective here wasn't just to create a third or fourth version of an ultralow-cost carrier. We wanted to create something sort of unique," Davis said. "We saw that begin to work in 2019 when we posted some pretty nice [financial] results. And then in 2020, our outperformance made it really evident that this model is really unique, that this model is resilient and can work."

By last July, Bricker said, the airline's leadership saw an opportunity to revive a plan to list its shares. They believed investors would be interested to see how it was outperforming other airlines that had been forced to make major cuts to staffing and operations.

While 2019 was a profitable year for Sun Country, it finished 2020 with a net loss of just $3.9 million. Revenue fell 43% from the previous year.

And in the last six weeks, Bricker said Sun Country has seen "a pretty steep recovery in our demand." Bookings on its commercial flights are down only 10% from pre-COVID levels.

The airline got its start in 1983 when some former Braniff Airways pilots and flight attendants decided to build a charter service at Minneapolis-St. Paul International Airport. It has had several owners since then, but it never listed on the stock market until now.

"I'm actually kind of proud of them to have gotten to this pinnacle of success," said Jim Olsen, Sun Country's first CEO and part of the founding group.

Olsen, who retired as COO of Sun Country in 2007, said he agrees with "about 90% of what Apollo has done" to the airline but wishes it would have kept a higher level of in-flight customer care that he feels has gone missing. Still, he said he's pleased with where they are today.

"Just surviving all of the ups and downs, the different ownerships, it's pretty remarkable they are still here," he said.

Kristen Leigh Painter • 612-673-4767