The ratification of labour cutbacks negotiated with its nine unions and new creditor agreements mean Air Canada has cleared some major hurdles in its bankruptcy reorganisation, and the airline has been allowed to move into the next phase of its complex restructuring.
The airline spent July negotiating with its creditors, and early in that process it struck a deal worth an estimated C$1.8 billion ($1.3 billion) with GE Capital Aviation Services, its main aircraft lessor. GECAS agreed to restructure 106 aircraft leases, provide C$425 million in debt financing, and up to C$950 million to help finance as many as 43 new regional jets. These are part of chief executive Robert Milton's vision for Air Canada's domestic future as a leaner airline flying smaller jets more frequently.
Air Canada's next biggest debt is an estimated C$1.8 billion pension deficit. Not only must the carrier reach agreement with the federal pension regulator on a payment schedule, but must also resolve a dispute over its right to use funds for other purposes.
Union leaders and the regulator claim any cash the airline holds is earmarked for payment of the pension deficit. Unions have also asked the government to back loans so that Air Canada can make its pension payments now.
The airline hopes to convince most creditors to capitalise whatever Air Canada owes them. But debt capitalisation raises the spectre of a power struggle in the next and final restructuring phase over who will eventually own and control the airline.
Vulture funds are buying Air Canada debt at discounted rates in the apparent hope of converting it into some form of leverage. As a hedge against this, Air Canada has offered generous severance packages to its top five executives if they are forced out by a new majority shareholder.
The bankruptcy court has extended Air Canada's reorganisation deadline to 30 September.
DAVID KNIBB SEATTLE
Source: Airline Business
