Apart from the loan to repay its customers whose flights were canceled due to the pandemic, Air Canada no longer wants financial assistance from the federal government. This withdrawal eliminates the option that would have allowed Ottawa to acquire more shares of the carrier, which also frees itself from any obligations in terms of remuneration of its bosses.
“Although the pandemic is not yet over, we interpret this decision as a sign of confidence [de la part d’Air Canada] with respect to the recovery, ”Scotiabank analyst Konark Gupta said on Friday following the announcement.
Last April, Ottawa rushed to the aid of the country’s largest carrier by spending $ 500 million to buy shares at a price of $ 23.18, which gives it a 6% stake. The Trudeau government also offered $ 4 billion in secured and unsecured credit facilities as well as $ 1.4 billion to reimburse travelers. The plan totaled about $ 5.9 billion.
With the exception of the cash back envelope, the loans came with restrictions, such as capping total executive compensation at $ 1 million per year, dividend payments, and share buybacks.
Air Canada has repeatedly said over the past few months that it wants to avoid resorting to government credit facilities, which are a sort of emergency parachute.
Withdrawal [de l’aide] could also be a signal that deleveraging could be on the priority list for the next few years.
Konark Gupta, Analyst at Scotiabank
Taking into account the billions offered by the federal government, Air Canada had access to more than $ 14 billion in liquidity as of September 30.
Borrow to repay
The Montreal-based company says it has borrowed about $ 1.2 billion of the $ 1.4 billion available – at an annual interest rate of 1.2% – from the credit facility intended for passenger repayments.
These funds were “paid directly to customers,” says Air Canada. Customers are still complaining about waiting for their reimbursement, several months after the agreement between Ottawa and the air carrier.
“About 58% of eligible customers requested a refund, including those who were not covered by the government facility,” Air Canada said. The others kept credits for future flights. ”
The sum of $ 1.2 billion will be repaid according to the terms of the agreement.
Air Canada sparked an outcry by paying bonuses totaling $ 10 million to its managers and senior executives after posting an operating loss of about $ 3.8 billion in 2020, shaken by the pandemic.
Popular discontent had prompted the company to back down. Senior executives had waived their bonuses and other benefits. Air Canada now has all the latitude to pay its bosses as it sees fit.
Canceled options
Last August, the Parliamentary Budget Officer estimated that the federal government would pocket $ 177 million from the aid granted to Air Canada.
However, the calculation took into account the value of the warrants. The aid plan allowed Ottawa to buy, over a 10-year period, up to 15 million more shares at about $ 27.27 per share.
With the withdrawal, half of the vouchers, which have not been acquired, are automatically canceled. Air Canada intends to exercise its option to repurchase, for cancellation, the remaining portion, at its “fair market value”.
According to the carrier’s most recent quarterly report, as of September 30, the “fair market value” of warrants acquired was estimated at $ 84 million.
Along with the aid package, Air Canada had raised about $ 970 million by the end of the third quarter through the Canada Emergency Wage Subsidy, a program that ended last month.
In addition to Air Canada, Ottawa entered into financing agreements, which provided for reimbursements for travelers, with other companies, such as Transat AT, Porter Airlines and Sunwing.
On the Toronto Stock Exchange on Friday, Air Canada shares closed at $ 23.55, down 59 cents, or 2.4%.
