Jetsgo's collapse has eased the way for Air Canada's parent company to raise C$720 million ($590 million) in the capital markets as the first of several steps aimed at strengthening its finances
The airline had planned only to seek C$600 million, but demand was so strong that it decided at the last minute to boost its mixed debt and equity offering by 20%, which it quickly sold. Overallotment options could push the final total as high as C$800 million.
Air Canada has also confirmed a C$300 million two-year revolving credit facility. A number of banks competed vigorously for this loan, but in the end the airline accepted a package deal from several lenders.
The biggest impetus for this capital-raising was to retire a C$540 million exit finance loan that GE Capital Aviation Services (GECAS) made to Air Canada when it emerged from creditor protection. At 4.5 points over the London interbank offer rate, the GECAS loan is one of the most expensive in the airline industry. Refinancing it not only saves Air Canada C$27 million in annual interest, but also frees it from restrictions contained in that loan on subsidiary sales and hedging contracts for fuel and currency.
Air Canada is coy about whether or when it might take the next steps in its financial restructuring. It met with investment bankers in January to discuss several options. The one attracting most attention is a possible sale of a stake in Aeroplan, the airline's lucrative frequent flyer programme. Aeroplan generated C$99 million on revenue of C$509 million last year. Analysts estimate it is worth up to C$2 billion.
The airline's parent admits it is looking at various Aeroplan options, which could include creating an income trust, converting Aeroplan into a publicly traded company and offering shares, or acquiring or merging it with another loyalty programme. But the airline is also sitting on cash reserves of over $2 billion, so it is under no pressure to sell.
Other spin-off candidates are Air Canada's maintenance centre and Jazz, its regional airline division.
DAVID KNIBB SEATTLE
Source: Airline Business
