The pieces are falling in place for Air Canada to leave court-supervised restructuring by the end of September as it gains more labour concessions and a cash injection.
By mid-July the last of nine unions ratified its part of a C$200 million ($151 million) package of further labour concessions. The court has approved a C$250 million equity injection from New York hedge fund Cerberus Capital Management, and Air Canada has filed its proposed plan of arrangement ahead of a vote by creditors in mid-August.
The initial deadline to ratify the added concessions was 30 June, but one union kept everyone in suspense until mid-July. Together with concessions approved last year, all employees have now accepted labour savings through modified work rules, fewer staff, and lower pay and benefits worth C$1.1 billion annually. Unions have also agreed to seek no increases for at least two years.
Key elements of the proposed plan include capacity cuts between now and 2007 as the airline phases out larger jets, shrinks its fleet, and shifts to more regional jets on domestic and US routes. Growth will only focus on overseas markets. Distribution will be further moved on to the web with simplified fares. The airline projects C$8.9 billion in revenue for this year, with C$9.1 billion in 2005. Analysts generally have praised the plan.
The new ownership will emerge after creditors decide how much to participate in a C$850 million equity rights offering backed by Deutsche Bank. If creditors take up the full offering, they will own 88% of Air Canada, including the 46% they gain from capitalising their claims. Cerberus will hold 9%, and Air Canada executives 3% of shares. To the extent creditors do not subscribe to the rights offering, Deutsche Bank will own the rest.
Next steps include review of creditor claims and Ottawa's extension of the pension law's deficit repayment schedule.
DAVID KNIBB SEATTLE
Source: Airline Business
