Air Canada agrees to $ 5.9 billion in aid package and gives Ottawa shares in airline

Ottawa — After months of negotiations, Ottawa has signed a multi-billion dollar bailout agreement with Air Canada. This will result in the government acquiring shares in a pandemic airline.

Under the agreement, Air Canada will have access to up to $ 5.9 billion from public wallets, but will refund passengers whose flights have been canceled due to COVID-19, limit executive compensation to $ 1 million, and local airports. You need to restore service to.

With this package, the federal government will pay $ 500 million for a 6% stake in the country’s largest airline, requiring airlines to maintain employment above current levels.

“Taxpayers don’t support the bill. It’s a credit line and the Government of Canada expects it to be fully repaid,” Finance Minister Chrystia Freeland said Monday night at $ 5.4 billion. Mentioned the credit line of.

Approximately $ 1.4 billion of that will go to refunds to thousands of customers who bought tickets but were in a hurry at the end of 2020.

“Air Canada has agreed that refunds should be made as soon as possible within the next few weeks or months,” said Air Canada, which has up to seven years to take out low-interest loans. There is.

Goldy Hyder, Chief Executive Officer of the Canadian Business Council, and Hassan Yussuff, Chairman of the Canadian Labor Council, have announced approval of rescue packages tailored to the devastated industry.

However, the Canadian Civil Service Coalition, which represents 10,000 Air Canada flight attendants, “betrays the government’s commitment to assist airline workers affected by the pandemic,” said the deal. Blame.

CUPE President Mark Hancock said in a statement, “The Trudeau government has promised that relief money to the aviation sector will flow directly to support workers, and that promise is not reflected in this agreement.” Said.

“This deal was what we were afraid of what a closed-door deal would look like. Thousands of rooms a year behind, opaque and still moving from the effects of a pandemic. Not enough to support the crew. “

The travel restrictions introduced at the beginning of the pandemic were devastating to the aviation sector.

Air Canada’s passenger numbers fell 73% in 2020, following record growth for airlines over the years. By 2020, we reduced our staff by more than 20,000. That’s more than half of what it was before COVID, and in January we reduced another 1,700 employees.

The Montreal-based company posted a staggering $ 1.16 billion loss in the fourth quarter of last year. This concludes what the then CEO of the airline called the darkest year in aviation history.

Freeland asked if the package could provide a framework for trading with WestJet, emphasizing the importance of the two state-owned airlines and “constructive” negotiations with a second Calgary-based airline. It was characterized as.

The deal was hashed under the supervision of Michael Savior, who was appointed Deputy Finance Minister in December after decades of senior positions in both the business world and public services. He resigned as CEO of the Quebec Investment Trust Bank in February 2020 after 11 years of command.

According to Freeland, the deal he supported defeated Air Canada’s dividend payments and share buybacks, in addition to capping executive compensation as long as the loan was disbursed.

The company also promises to resume service at 13 regional airports and 7 other airports through “interline contracts” with regional airlines.

In addition, we have completed the purchase of 33 Airbus A220 aircraft manufactured at the Mirabel facility in Quebec, promising to ensure continued employment of factory workers.

According to Freeland, flights purchased before March 22, 2020 will be refundable for travel after February 1, last year, regardless of whether canceled by passengers or airlines.

She said tickets that were purchased after March 22, 2020 and whose flights were subsequently canceled by the airline will also be refunded.

Air Canada has confirmed that customers who accept flight credits or Aeroplan points, and those who refuse both, are eligible for a refund.

If Ottawa buys 21.6 million shares for $ 500,000 for $ 23.18 per share, it has less ownership and is entitled to an additional 14 million shares. The maximum voting rights for the company is less than 20%.

Jackroy, a professor of transportation management at HEC Montréal Business School, saw equity interests as “a little surprise.”

Canadian airlines have been deployed elsewhere, but have resisted the tool. The French government announced last week that it would raise its stake in Air France-KLM to about 30% with an investment of $ 6 billion. Germany announced a 20% stake in Lufthansa last May as part of a $ 13.7 billion bailout.

Under the terms of the agreement, Ottawa can buy millions of shares for $ 27 per share (Air Canada’s closing price on Monday) over a 10-year period if Air Canada chooses to trigger that option.

“Assuming Air Canada is doing well and the company’s stock returns to $ 40, $ 50 in a few years, the Canadian government can actually make a fair deal,” Roy said. I did.

He added that more than $ 2.3 billion of the $ 5.4 billion in available loans is less than 2 percent, which is the enviable “cheap” interest rate for other Canadian airlines.

In addition to large loans under Canada’s Large Employer Emergency Financing Facility (LEEFF) program, the company has raised $ 6.8 billion in liquidity to maintain liquidity during a pandemic.

In a statement, CEO Michael Rousseau said, “This program will, if necessary, rebuild the business for the benefit of all stakeholders and continue to make a significant contribution to the Canadian economy through recovery. Provides sex. “

Air Canada said it would raise $ 554 million from Canada’s emergency wage subsidy in 2020 and will continue to access the program in 2021.

The company lost $ 4.6 billion in 2020, but the previous year’s profit was $ 1.5 billion.

In early April, Air Canada blocked the planned $ 190 million acquisition of Montreal-based tour operator Transat AT.

Organizations that support Air Canada’s call for bailouts include unions such as Unifour and the Canadian Air Traffic Control Association, as well as industry associations of the National Aviation Council of Canada.

Christopher Reynolds