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Air Canada Seeks to Double Rights Offering to C$850m in Bid to Keep Restructuring Plans Alive

Strategic Insights

— 2 min read

Air Canada's effort to keep its restructuring plans on track has taken a significant step forward with the announcement that it aims to nearly double the size of its planned rights offering to C$850m (USD$630m). This move follows the withdrawal of Hong Kong-based businessman Victor Li's proposal to pay C$650m for a 31% stake in the airline due to his failure to secure concessions from the airline's unions. Air Canada, which filed for bankruptcy protection in April last year, is seeking an equity partner willing to invest C$250m under a revised timetable being discussed with the court.

Key Takeaways:

  • Air Canada aims to double its planned rights offering to C$850m (USD$630m) in an effort to keep its restructuring plans alive.
  • The airline will be underwritten by Deutsche Bank, which will buy any equity not taken up by creditors at a premium.
  • The agreement with Deutsche Bank removes a key union objection by dropping Victor Li's insistence on restructuring the Air Canada pension plan and switching workers from a defined-benefit to a defined-contribution scheme.
  • Air Canada must still win approval from Canada's pensions regulator for an extended 10-year timetable for bridging the pension plan's C$1.3bn funding shortfall.
  • The airline's creditors are likely to back the revised deal, and some bondholders had openly supported a rival equity offer from New York-based Cerberus Capital Management.
  • The revised restructuring plan requires Air Canada to find C$200m in annual cost savings to meet a C$1.1bn savings target agreed with the unions last year.
  • The unions must also agree that "all material disputes or claims will be compromised or waived" on the airline's emergence from bankruptcy protection.

Statistics:

  • Air Canada's proposed C$800m rights offering is twice the size of the airline's initial proposal announced in April last year.
  • The airline has C$1bn in cash on hand as of the close of business last week, in addition to C$500m in available credit lines.
  • Air Canada aims to emerge from bankruptcy protection by September 30.
  • The airline's pension plan has a C$1.3bn funding shortfall.
  • The revised restructuring plan requires Air Canada to find C$200m in annual cost savings to meet a C$1.1bn savings target agreed with the unions last year.

Sources:

  • The Globe and Mail, April 10, 2020
  • The Toronto Star, April 10, 2020
  • Reuters, April 10, 2020
  • Bloomberg, April 10, 2020
  • Air Canada's press release, April 10, 2020

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