As US majors look at possible consolidation, cash-rich Air Canada could make a strategic investment
Air Canada is looking south as the US industry focuses its attention on possible consolidation, mergers and acquisitions.
Robert Milton (pictured), chief executive of Air Canada parent ACE Aviation, says: "There has been dialogue with the US space looking to change, and I don't think it's inconceivable that Air Canada could be part of it and I think it would make a lot of sense for a US airline to look to Air Canada. In my view, as I watch the US airlines scurrying around to merge, anybody that actually ties up with Air Canada gets a unique piece of geography."
ACE owns 75% of Air Canada, but is planning to sell its holdings including the airline and affiliates. Last year it sold its maintenance unit, which along with secondary offerings for its regional subsidiary and frequent flier programme, drove a C$1.4 billion ($1.4 billion) net profit. That gave it a cash balance of C$1.9 billion, enough to make a play in the dynamic US market. ACE posted an operating profit of C$453 million for the full year, up from C$395 million for the previous year.
After the planned wind-down is completed, ACE plans to distribute its remaining interest in the airline to its shareholders and then cease to exist as a holding company. The wind-down was slated to take place by mid-2008 but Milton says it may be delayed because of sagging share prices on Canadian and US markets.
ACE could join with a fund or funds to help finance a major US transaction. Milton told analysts ACE has recently been "approached by private equity, by pension funds".
Canadian investment firms such as Onex, which led the buyout of Boeing's structures unit, now Spirit AeroSystems, or the Ontario teachers' pension fund, which financed a buyout of the Worldspan Global Distribution System in 2003, could be involved in a cross-border deal. Milton declines to name names but says: "I think there's plenty of money in Canada."
Air Canada has previously invested south of the border, holding a significant chunk of Continental in the early 1990s. But both the USA and Canada limit investment in airlines by foreign companies and citizens.
Source: Airline Business
