Air Canada shares fell after the company reached a deal with the Federal Government for loans and equity worth nearly$ 5.9 billion making the state the largest airline since the 1980s, for the first time since then.
Toronto declined 2.6% to C$ 26.29 at 12:00 p.m. in Air Canada. Earlier it fell more than 6.6% as the market absorbed the news that Prime Minister Justin Trudeau's government is buying$ 500 million of shares at a discount. The government will also receive warrants as part of a financing agreement that makes Air Canada eligible for five new credit facilities, according to a company statement.
The dilution for shareholders was greater than we had anticipated, said Kevin Chiang, an analyst at the Canadian Imperial Bank of Commerce in a note. If all warrants were exercised, the government would own 9.7%, said Chiang.
In return for the money Air Canada agreed to reduce share buybacks and dividends, keep employment at April 1 levels and follow a deal to buy 33 Airbus SE A 220s, made in a Quebec factory. Executives wo n't be allowed to earn more than$ 1 million; and the airline will resume service on routes its suspended to far north locations like Gander, Newfoundland and Yellowknife in the country's distant north. The long-anticipated announcement will ease tensions between the industry and the Trudeau government, which has made most foreign travelers now banned from entering the country and recently made the rules even tougher.
Air Canada repeatedly complained that its homeland was the only Group of Seven member without an aid plan specifically for the aviation sector- although 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 some time, said Finance Minister Chrystia Freeland at a news conference Monday evening.
Air Canada also committed to paying back customers who did n't take the flights they had booked because of Covid- 19. One of the credit facilities, a C$ 1.4 billion line, is dedicated to financing refunds.
At first glance, the Air Canada Aid package for Canadian government looks somewhat onerous, said Citigroup analysts in a note. On one hand, the aid certainly helps provide a more stable financial situation for the carrier.
On the other hand, some of the requirements seem difficult to accept. Although the equity component is somewhat surprising, the package is the money that's needed, said Robert Kokonis, managing director of Toronto-based aviation consulting firm AirTrav Inc. It's going to take a lot of help for carriers.
We 've been through a lot.
Kokonis said that we 've been on standby while airlines in countries around the world received one or more aid packages, Kokonis said. Freeland said the talks with other airlines, including Onex Corp., controlled by Toronto-based investment firm WestJet Airlines Ltd. Tour operator Transat AT Inc. also need money and says it is talking to the government after a deal to be taken over by Air Canada fell apart. Wherever and whenever the federal government provides public assistance, the covered company will have to give solid guarantees that the public interest will be protected, workers protected and the interests of travelers defended, Freeland said.
As of March 18, according to Ishka Ltd. an aviation finance and investment consultancy, government funding for the industry globally- including loans and equity stakes in exchange for cash- has totaled more than$ 183 billion.
Before the agreement with Sunwing Vacations Inc. was the industry's most visible lifeline to the industry a combined C$ 375 million in emergency loans to the industry and Sunwing Airlines Inc., a small vacation operator.
Air Canada said it will only draw down new credit facilities as required.
The package includes C$ 2.48 billion in unsecured loans; this program provides additional liquidity 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, Chief Executive Michael Rousseau said in a statement.
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