Air Canada to get $4.7bn in state loans and equity
The Canadian government will buy C$500m worth of shares at a discount, with workforce and dividend conditions
Montreal/Ottawa — Air Canada has reached a deal with the Canadian government for loans and equity worth nearly C$5.9bn ($4.7bn), a package to help the airline get through the pandemic and restore flights to remote parts of the country.
The state, which sold off its ownership interest in the 1980s, will once again own a piece of Canada’s largest airline, buying C$500m worth of shares at a discount. Prime Minister Justin Trudeau’s government also negotiated warrants as part of a broad financing agreement that makes Air Canada eligible for five new credit facilities totaling C$5.38bn, according to a company statement.
In return for the money, Air Canada agreed to restrict share buybacks and dividends, keep employment at April 1 levels and follow through on a deal to buy 33 Airbus A220s made at a factory in Quebec. Executives won’t be allowed to earn more than C$1m. And the airline will resume service on routes its suspended to distant locations such as Gander, Newfoundland and Yellowknife, in the country’s far north.
The dilution for shareholders “was greater than we had anticipated”, Kevin Chiang, an analyst at Canadian Imperial Bank of Commerce, said in a note. If all the warrants were exercised, the government would own 9.7%, he said.
The long-anticipated announcement will ease tensions between the industry and Trudeau’s government, which, since March 2020, has barred most foreign travelers from entering the country and recently made the rules even tougher.
Air Canada repeatedly complained that its home country was the only G7 member without an aid plan specifically for the aviation sector — though the company has used federal wage subsidies available to all industries hit by the pandemic.
“We wanted a good deal, not just any deal. And getting a good deal can sometimes take a little time,” finance minister Chrystia Freeland said at a news conference Monday evening.
Air Canada also committed to paying back customers who didn’t take flights they had booked because of Covid-19. One of the credit facilities, a C$1.4bn line, is dedicated to financing refunds.
Air Canada will issue 21.6-million new shares. While the equity component is “somewhat surprising”, the package is “the money that’s needed”, said Robert Kokonis, MD of Toronto-based aviation consulting firm AirTrav.
“It’s going to take a lot of aid for carriers. We’ve been through a lot. We’ve been on standby while airlines in countries around the world have received one or more aid packages,” Kokonis said.
Freeland said talks are ongoing with other airlines, including WestJet Airlines, controlled by Toronto-based investment firm Onex. Tour operator Transat AT also needs money and has said it’s talking to the government after a deal to be taken over by Air Canada fell apart.
“Wherever and whenever the federal government provides public aid, the supported company will have to give solid guarantees, as Air Canada did, that the public interest will be respected, workers protected, and travelers’ interest defended,” Freeland said.
As of March 18, government financing for the airline industry globally — including loans and equity stakes in exchange for cash — totaled more than $183bn, according to Ishka, an aviation finance and investment consultancy.
Before Monday’s agreement, Canada’s most visible lifeline to the industry was a combined C$375m in emergency loans to Sunwing Airlines and Sunwing Vacations, a small vacation operator.
Air Canada said it will only draw down the new credit facilities “as required”. The package includes C$2.48bn in unsecured loans.
“This programme provides additional liquidity, if required, to rebuild our business to the benefit of all stakeholders and to remain a significant contributor to the Canadian economy through its recovery and for the long term,” CEO Michael Rousseau said in a statement.
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