By the end of September, Air Canada hopes to have lined up a new investor and C$700 million ($505 million) of fresh capital in order to complete its restructuring.
Labour cost cuts were ratified in June and negotiations with most lessors wound up in July, leaving arrangements with creditors and new capital as the last big steps in Air Canada's bankruptcy court-supervised reorganisation.
The amount of new capital it will need depends on talks with creditors over the airline's C$13 billion debts. Air Canada is seeking extended payment terms on some debts, such as its unfunded pension liability, and is also looking for capitalisation of others.
General Electric's GECAS leasing arm has already said it will provide C$600 million in debt financing, which the airline has still not tapped. With that and its target for new capital, Air Canada could end up with C$1.3 billion in exit financing.
Creditors say this is more than the airline needs. They also seek a greater role in the investor selection process, but so far the court has disagreed.
Three sets of financial advisors are helping Air Canada deal with potential investors, and talks are under way with the airline's management. The carrier hopes to negotiate a final equity plan, which GECAS must approve by Friday 26 September, ahead of its deadline on the following Monday to file a restructuring plan with the court.
The three suitors most often mentioned are Cerberus Capital Management, a US hedge fund, Onex, which lost a take-over bid for Air Canada in 1999, and Texas Pacific Group, an investor that specialises in airline acquisitions. As foreign companies, Cerberus and Texas Pacific would be subject to Canada's 25% foreign ownership cap which Ottawa has repeatedly rejected calls to relax.
Some analysts suggest a foreign investor could circumvent the cap by becoming a 50% partner in a venture that, in turn, held majority control of an Air Canada holding company. But the legality of such a structure is untested.
As it explores the options for raising equity, the carrier continues to restructure its aircraft leases. Air Canada says leases on 135 aircraft have been restructured, a number that could soon increase to 194 aircraft, or about 60% of its fleet, as talks with lessors progress.
DAVID KNIBB SEATTLE
Source: Airline Business
