Air Canada keeps 75% control while the investor group takes a 25% stake
Air Canada will sell a 25 percent stake in its Aeroplan loyalty program to an investor group that includes three of Canada's largest institutional and pension managers, in a $2.5bn transaction that values the program at $10bn.
The airline said on August 11 that funds managed by Blackstone and La Caisse are leading the minority investment, with PSP Investments and British Columbia Investment Management Corporation (BCI) also taking part.
Air Canada will keep the remaining 75 percent and, according to the company, full operational control over Aeroplan's strategy, operations and day-to-day management.
For retirement asset managers, the deal marks another large private equity commitment by Canadian public sector plans.
La Caisse, PSP Investments and BCI all invest pension money, and La Caisse framed its participation as a portfolio move.
"It is also an attractive diversification opportunity for our global portfolio, which ultimately benefits our depositors," said Martin Longchamps, executive vice-president and head of private equity and private credit at La Caisse.
Air Canada will direct the proceeds toward repaying an upcoming US$1.2bn ($1.7bn) bond maturity and toward accelerating share buybacks.
According to Air Canada, repaying the bond reduces gross debt without drawing down cash.
The transaction landed alongside weaker quarterly results.
Air Canada reported a net loss of $178m for the second quarter, compared with net income of $186m a year earlier, as per BNN Bloomberg.
That worked out to a diluted loss of 63 cents per share against diluted earnings of 51 cents a year before.
Revenue rose to $6.3bn from $5.6bn over the same period, BNN Bloomberg reported.
Settlement of the Aeroplan investment is planned for August 17, the company said. Air Canada will continue to consolidate Aeroplan in its financial statements and record the stake as a non-controlling interest within shareholders' equity. Investors will share in distributions declared by Aeroplan's board under an agreed policy.
According to the announcement, Air Canada also secured the right to buy back the investor group's stake between the fifth and eighth anniversaries of settlement, and on certain specified events.
The repurchase price follows a formula that gives the investors an internal rate of return of 6.5 percent, calculated net of all distributions.
Separately, Air Canada said it plans a substantial issuer bid to buy back up to $800m of its Class A variable voting shares and Class B voting shares for cancellation.
The company will run the buyback as a modified Dutch auction, set its terms shortly after the August 17 settlement, and aim to complete it in September.
Air Canada intends to fund the bid with proceeds from the Aeroplan investment.
John Di Bert, executive vice-president and chief financial officer at Air Canada, said the transaction strengthens the airline's balance sheet and supports its pursuit of an investment-grade rating as it executes its long-term plan.
