Air Canada chief executive Robert Milton says the carrier's restructuring 'is coming down to its final months and a lot will happen in this period' as it lines up potential new investors.
The judge supervising Air Canada's reorganisation gave it until 20 December to file its plan, a deadline that Milton is confident can be met without another extension. By then the financial picture should be clear. 'The equity process is moving exactly on the schedule that we expected,' he says.
The airline has narrowed its choice of investors to Canadian citizen Victor TK Li, son of Hong Kong shipping billionaire Li Ka-shing, and Cerberus Capital Management, a New York fund that has as its Canadian adviser a company that includes former premier Brian Mulroney. Air Canada will pick one of these investors during November to provide an injection of at least C$700 million ($520 million) of new capital. Creditors will also back a rights offering that could raise another C$300 million.
'We will have many moving pieces in the coming months,' Milton warns. These will include choosing between the two investors, determining how much of an equity stake the successful party would receive for its investment, and how that will affect the interests of the creditors, who must ultimately approve Air Canada's plan. Depending on which creditors capitalise amounts owed to them, how much their shares are diluted by the new investor, and the value of those shares, analysts estimate that the recovery for unsecured creditors could be 15-25% at most. Already feeling squeezed, some creditors have threatened to block the plan if the new investor receives too much equity.
Complicating this delicate balance is the unresolved question of Air Canada's pension liability, estimated at C$1.5 billion. The key issues here are whether unions will accept reductions in this amount, how much the government will relax its payment schedule and how this will affect the Air Canada exit balance sheet
David Knibb/Seattle
Source: Airline Business
