LCC Through An LBO Lens

Research evidence excerpt

LCC Through An LBO Lens

Foundation

June 18, 2026 04:00 PM GMT

Morgan Stanley & Co. International plc+MAirlines | Europe Axel Stasse

Equity Analyst

LCC Through An LBO Lens Axel.Stasse@morganstanley.comNicolas J Mora +44 20 7425-2429

Nicolas.Mora@morganstanley.com +44 20 7677-5376

With LCC valuation depressed, we leverage our flexible LBO Oscar P Smyth

framework (available on request) as an alternative valuation ResearchOscar.Smyth@morganstanley.comAssociate +44 20 7425-6567

lens, implying illustrative IRRs of 10-21%. Hypothetically, this Cedar Ekblom, CFA

suggests more upside for Wizz/Jet2, while for EZJ, value creation Cedar.Ekblom@morganstanley.com +44 20 7425-4623

appears reliant on fleet monetisation and SLB execution. Transport

Europe

European Airlines valuation trades at a -11% discount vs the 10Y median on Industry View In-Line

EBITDA, excluding COVID, driven by a -22% discount in LCCs vs an +8% premium

for flag carriers. The divergence reflects rising competitive pressure for the LCCs,

where EZJ/Jet2 and Wizz Air are driving supply growth, raising oversupply and

pricing risks in UK outbound markets. In contrast, flagship carriers continue to

benefit from premiumization, fleet upgauging and resilient transatlantic profitability,

supported by disciplined capacity growth.

In light of recent PE interest in airlines, we take a look at valuation through an

LBO lens, though the sector remains a challenging fit for financial sponsors, in our

view. The industry lacks many of the characteristics typically sought, including

stable cash flows to support leverage and asset-light business models that drive

consistent cash generation. Moreover, while operational improvements and

sweating the assets can unlock meaningful value, airline earnings are cyclical, which