Air Canada to benefit from US Air merger
Maintenance contract worth $1.5-billion
US Airways has received clearance from a U. S. federal judge to exit bankruptcy protection and merge with America West Airlines in a deal that is to include $1.5-billion worth of outsourced maintenance contracts for Air Canada’s parent company.
The decision yesterday by the U. S. Bankruptcy Court clears away the final hurdle to the successful completion of US Airways second round of bankruptcy proceedings and the creation of a newlymerged airline.
Meanwhile, two US Airways’ chief rivals, Delta Air Lines and Northwest Airlines, applied this week for Chapter 11 status after faltering under the weight of soaring jet fuel prices in the wake of Hurricane Katrina.
“ With the financial position of other carriers deteriorating, we are pleased we will have a very strong cash position, a robust business plan a low cost structure and and a strong network,” said Bruce Lakefield, US Airways’ chief executive.
The successful emergence of a “new” US Airways will have reverberations north of the border as Air Canada’s parent company, ACE Aviation Holdings Inc., is one of several investors in the merged airline.
ACE Aviation earlier this year agreed to sink US$75-million into the merger in exchange for a seat on the new airline’s board and commitments for $1.5-billion worth of outsourced aircraft maintenance, repair and overhaul contracts to Air Canada Technical Services (ACTS) over a five-year period. The deal is expected to create about 700 jobs at ACTS.
Fadi Chamoun, an analyst with UBS Investment Research, has speculated that ACE Aviation may consider spinning off its ACTS unit, possibly as an income trust, once the US Airways-America West deal is closed.
That’s because the flood of forthcoming maintenance contracts will dramatically reduce the division’s reliance on Air Canada. ACE Aviation has already spun off part of its Aeroplan loyalty program and said it is preparing a similar partial sale of its regional carrier Jazz.
Air Canada, the country’s largest airline, is also in a position to benefit from ACE Aviation’s investment because of promises that include increased access to gates and new marketing opportunities at some U.S. airports.
Ben Cherniavsky, an analyst at Raymond James, said Air Canada could also benefit from the downsizing that’s expected to occur at Delta and Northwest as both airlines look for ways cut back on unprofitable routes and reduce staff.
“ Air Canada and Jazz have plans to add capacity next year as they go after some of vulnerable routes of the U. S. carriers,” Mr. Cherniavsky said. “So, Air Canada could be strengthened somewhat if these guys decide to downsize their capacity on transborder routes.”
Since filing for bankruptcy protection earlier this week, Northwest has already said it plans to eliminate 13 parked aircraft as soon as possible.
Another 67 aircraft are also being considered for removal, according to a research note issued yesterday by Michael Linenberg, an analyst with Merrill Lynch.