Air Canada today took another significant step in its financial restructuring after securing up to C$1.2 billion ($1 billion) in liquidity.
Since the beginning of the year Air Canada has aggressively been pursuing labour concessions and a financing package to avoid a second formal restructuring this decade.
A 21-month contract extension and a pension freeze for that same period of time with all five of its unions was contingent on the carrier raising C$600 million in financing.
GE Canada Finance Holding Company, Export Development Canada, Aeroplan and carrier parent ACE Aviation Holdings have agreed to supply up to $700 million in financing, with GE Finance serving as the administrative agent and GE Capital Markets arranging the transaction.
The agreed-to interest rate on the transaction is 12.75%, and an initial $600 million drawdown is available to the carrier. Air Canada can request the increase of $100 million by obtaining new commitments from the lenders.
Air Canada's initial $600 million drawdown is repayable beginning in August 2010 in quarterly installments of $30 million with a final $120 million payment due by the fifth anniversary of the initial drawdown.
The carrier has agreed to issue its lenders warrants to purchase Class A voting shares or Class B shares representing an aggregate 5% of total outstanding shares.
In addition Air Canada says it concluded an agreement with a supplier to secure a $220 million payment.
In a separate agreement Air Canada brokered sale-leaseback deals with GE Capital Aviation Services covering three Boeing 777-300ERs to raise an additional $122 million.
Air Canada has won further reprieves from its principal credit card processers, who have agreed to return deposits to the carrier when its cash levels rise to C$1.1 billion. Those processers have also agreed to revised cash security amounts required by Air Canada if the carrier's cash levels are below C$1.1 billion but above $800 million.
The carrier also opted to cut the number of options it is retaining for 787 aircraft from 23 to 13, and pushback delivery dates for the first aircraft to 2013. Prior to the latest delays stemming from the postponement of first flight, Air Canada was scheduled to receive its first 787 in 2012.
Air Canada CEO Calin Rovinescu says the new liquidity package "will give us breathing room towards achieving sustainable profitability. This will require a fundamental repositioning of the airline to focus on both cost management and a new approach to revenue generation to offset the dramatic erosion in yield".
Source: Air Transport Intelligence news
