The WestJet purchase will be led by Onex Partners, Onex's private equity platform focused on larger investments.
A couple of airline investments that would have been among the most high profile in Canada never took place.
Up to Friday's close, WestJet shares had fallen 5.5% in the last 12 months while Air Canada shares gained 58%. Canadian Airlines ceased operations in 2001.
The Onex bid follows a deal last week where low-priced Latin American airline Viva Air received a $50 million investment from US capital fund Cartesian Capital Group that it will direct toward expansion.
The deal was announced before markets opened on Monday. The stock shot up almost 60 per cent or $11.02 to $29.54 in early afternoon trading on Monday.
Onex made the initial approach in March 2019, with the airline setting up a committee of independent directors to supervise negotiations.
Analysts said the Onex bid is rich by airline standards, representing a premium to the valuations given to Air Canada and publicly traded USA airlines. "WestJet is looking for growth, which will be hard to find inside Canada as the market is relatively small".
Analyst Benoit Poirier of Desjardins Securities said Onex might look to acquire Transat A.T. The tour operator, which owns Air Transat, competes with WestJet for sun destinations and launched in 2017 a $750-million plan to develop a hotel chain in Mexico and the Caribbean.
"Privatizing tends to be easier to generate value longer term", said Chan.
WestJet CEO Gregg Saretsky on the airline's outlook and growth.
Onex is buying WestJet and taking it private.
A special meeting of WestJet shareholders is expected to be held in July to approve the transaction, which is expected to be completed by early 2020. The Onex bid for the airline has already received the unanimous recommendation of WestJet's board of directors, and Clive Beddoe, who co-founded WestJet in 1996 and remains the company's chairman.
"I am particularly pleased that WestJet will remain headquartered in Calgary and will continue to build on the success that our 14,000 WestJetters have created", Beddoe said in a statement.
"We have tremendous respect for the business that Clive Beddoe and all WestJetters have built over the years", he said. "WestJet is renowned internationally for its unparalleled guest experience and employee culture", said Popatia.
The deal is subject to a number of conditions, including court and shareholder approval and receipt of certain regulatory approvals, including under the Canada Transportation Act.
"We do not believe this transaction dramatically alters the competitive landscape, at least negatively", Canaccord Genuity analyst Doug Taylor said. "In our view, a private equity owner of an airline is likely to remain rational with respect to its approach to yields and profitability (versus) market share".